In 2023 there will be two HVAC-related incentive programs available: one that offers a rebate and one that offers tax credits. These are the Inflation Reduction Act and the Energy Efficiency Home Improvement Tax Credit. Understanding what these programs offer can help you choose the right HVAC system upgrades.

Here's what to know about both of these very important savings opportunities.

Get Up to $8,000 in HVAC Rebates With the Inflation Reduction Act

The Inflation Reduction Act (IRA) of 2023
Through the Inflation Reduction Act, low- and moderate-income families generally have the largest number of options for purchasing items and choosing upgrades that qualify. This is somewhat dependent on where you live, since each state will be allocated a specific amount of money for the program.

For example, families whose income is less than 150% of the median for their area can get rebates of up to $8,000 for a heat pump system and up to $4,000 for an electrical panel through The High Efficiency Electric Home Rebate Program that is part of the IRA. Determining the median income for your area is the first step. The rebate opportunity is significant, and can make a real difference in the comfort of your home and help you receive big savings at the same time.

Working with a professional HVAC provider is the right way to ensure the system is a qualifying option, since not every HVAC system will work for the rebates and credits. The system needs to meet requirements for energy efficiency and other factors before it can be used.

Do You Qualify?

To receive the HVAC credits and rebates that come along with this act you simply need to make sure you're purchasing and installing equipment that qualifies. Then you can have peace of mind, and not worry about whether you'll receive the credit on your taxes or not.

If you have other improvements to make you may want to complete them in a different year, to ensure you can get the full amount of credit for your HVAC system. With upper limits and annual requirements, you can maximize the amount of any rebates or other credits with some creativity and consideration.

Add to Tax Savings Through the Energy Efficient Home Improvement Tax Credit

The Energy Efficient Home Improvement Tax Credit is a modified version of a similar tax credit that was available in 2021, but then expired. This credit is part of the Inflation Reduction Act. The program offers a tax credit of up to 30% of the cost of a qualifying heat pump, along with a number of other tax credits and rebates. The Act helps homeowners who want to make energy efficient improvements and upgrades to their homes by giving them some of that money back on their tax return.

The new credit is actually better than the old one, offering more value and an expanded opportunity to get more money back for qualifying improvements.

In 2023 the tax credit offers $150 for getting a home energy audit, along with $250 for an exterior door. You can get a total of $500 for exterior doors, so you have the opportunity to replace two of them and receive a credit.

The credit also allows $600 for windows and skylights, along with certain types of water heaters, electrical panels, furnaces, and air conditioning units. That $600 is the total amount of credit for these items, not a per-item or per-system credit.

As for HVAC systems, that's where some of the biggest savings come in. Natural gas or electric heat pumps, along with electric or natural gas water heaters and biomass stoves and boilers have an upper limit credit of $2,000.

All of these credits sound like they could really add up, but there's a catch. The annual limit for taking the credit is $1,200. If you're adding an improvement in the HVAC category, though, that's the only category that allows for exceeding the limit and taking the full $2,000 at one time.

It's important to note that the credit can be as much as 30% of the total of the home improvements that were made during that year, but the limits for each individual improvement still apply.

Do You Qualify?

Qualifying for this tax credit is easy. You don't have to meet a certain income or credit requirement, or provide other specific criteria. You just need to make the HVAC upgrade or other improvement, or have a contractor make the improvement, that you want credit for, and make sure the product you choose is covered under the credit details.

For example, the HVAC system may need to meet Energy Star requirements, or have a specific rating, to qualify. If you install something that's better than what you had, but that doesn't meet the specifics of the tax credit, you won't be able to claim that credit.

Upgrade Before the Rebates and Credits Expire

The Inflation Reduction Act and Energy Efficient Home Improvement Tax Credit is in effect until 2032. Anyone claiming the credit after 2024 won't be able to do that without including the manufacturer's product identification number on their tax return. In 2023, however, that ID number is not required. Homeowners who want to make improvements can get started on upgrades and cost savings for 2023 and beyond.

Inflation Reduction Act Brochure