Home energy upgrades are becoming financial and climate winners

Thinking about a home heat pump? New and expanded government incentives, coupled with sharply rising utility costs, make it all the more attractive.

Especially when used in conjunction with clean sources of electricity such as rooftop or community solar, heat pumps — a single electrical device that can replace traditional heating and air conditioning systems homeowners — can warm and cool the home with less harm to the planet.

These investments are also becoming more attractive to consumers, due to heavy inflation. According to SaveOnEnergy.com, a whopping 87% of US homeowners surveyed said they experienced higher rates at at least one type of home service or utility during the summer. There’s another possible bonus: Incentives offered through the recently passed Inflation Reduction Act of 2022.

“These incentives not only save you money now and in the long term on your utility bills, but they also put our economy on the right track to save money,” said Miranda Leppla, Director of Environmental Law. reducing fossil fuel consumption contributes to climate change”. Clinic at Case Western Reserve University Law School. “It’s a win-win and good-for-all outcome.”

The use of heat pumps will become more common as governments legalize their use. Washington State recently made it mandatory that new homes and apartments are built with heat pumps. In July, California Governor Gavin Newsom announced a goal of 3 million climate-friendly and climate-ready homes by 2030 and 7 million homes by 2035, to be replenished by 6 million. heat pumps by 2030.

Here are four important things to know about upgrading your home to a heat pump system.

Heat pump costs, savings and efficiency considerations

According to Rewiring America, a nonprofit focused on electrifying homes, businesses, and communities, heat pumps are suitable for all climates and are three to five times more energy efficient than heating. Traditional kettle.

Instead of generating heat, these devices transfer heat from the cool outdoors into the warm indoor and vice versa when the weather is warm. Heat pumps rely on electricity instead of natural gas or propane, both of which have higher carbon emissions than electricity, says Jay S. Golden, director of the Dynamic Sustainability Laboratory at Syracuse University. renewable like wind or sun.

When installed, heat pumps can range from about $8,000 to $35,000, depending on factors like the size of the home and the type of heat pump, according to Rewiring America, but savings can be estimated to be up. hundreds of dollars per year for the average household . Plus, it’s a long game, as the heat pumps most people would consider installing have an average lifespan of 10 to 15 years, according to Rewiring America.

Joshua Skov, a business and government consultant on sustainability strategy and an industry consultant and lecturer at the University of Oregon, says electricity costs also tend to be more stable, helping consumers avoid gas price fluctuations.

“Despite the upfront cost, millions of homeowners will save money using a heat pump over the life of the unit,” he said. “You’ll save even more when the federal government covers part of the upfront costs.”

Incentive Inflation Reduction Act

The Inflation Mitigation Act — an expansive federal government effort to protect the climate — includes a variety of incentives to reduce the cost of energy-efficient real estate improvements. Jono Anzalone, a faculty member at the University of Southern Maine and executive director of The Climate Initiative, an organization that empowers students to tackle climate change, says the incentives go far beyond what’s available. for today’s homeowner.

For low-income households, the Inflation Reduction Act covers 100% of the cost of a heat pump, up to $8,000. For middle-income households, it covers 50% of your heat pump costs, up to the same dollar limit. Homeowners can use computers — such as those available from rewind America — to determine their eligibility.

If you’re considering a lot of green home improvements, keep in mind that the general law’s threshold for “qualified electrification projects” is a maximum of $14,000 per household.

Federal Tax Credit for Homeowners

Peter Downing, principal of Marcum LLP, head of the accounting firm, said that for those who exceed the income threshold for a rebate, starting January 1, they can take advantage of the credit at any time. non-commercial energy property, commonly referred to as 25C. preference groups and tax credits.

Homeowners can get a 30% tax credit for energy-efficient home projects like heat pumps. In a given year, they can get a credit up to $2,000 to install certain equipment like heat pumps. This credit will expire after 2032, according to the Congressional Research Service.

There may be another tax credit available to homeowners who purchase a geothermal heat pump, which is a pricier option but lasts longer on average. Homeowners can get an unlimited 30% tax credit for geothermal heating installations, which, according to Rewiring America, estimates the average geothermal installation cost around $24,000 and lasts from 20 up to 50 years. That means the average tax credit for this type of pump would be around $7,200, Rewiring America said.

Rule-making is still underway for the Inflation Reduction Act. But it’s possible that eligible consumers will be allowed to receive both the rebate and the credit, Downing said. But the math may not be so simple, based on previous IRS guidance on energy rebates backed by the federal government. Let’s say a consumer gets a 50% discount on a heat pump that costs $6,000. For tax credit purposes, the remaining $3,000 could qualify for the 30% tax deduction, resulting in a credit that could be $900, he said.

State and local financial support

States, cities, and local utility companies may offer discounts on certain efficiency devices, including heat pumps. “Check them all out because there are so many levels,” said Jon Huntley, senior economist at Penn Wharton Budget Modeling and co-author of an analysis of the potential impact of the Inflation Reduction Act. different programs, you really need to look around.” on the economy.

Also, be sure to check back often to see what new state, local, and utility-based offers may be available as programs are often updated, Golden says. Reputable local contractors should also be aware of locally available discounts, he said.

Many installation companies have aggressive financing packages to make heat pump installations more viable, says Anzalone.