By DR. MIRIAM ACZEL and KATE RINGNESS
On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 (IRA) into law, which includes $369 billion for climate and energy programs—the biggest federal investment to combat climate change in U.S. history. Among other measures, the IRA offers financial incentives to consumers who buy high-efficiency appliances, purchase electric vehicles (EVs), or install rooftop solar panels. Additionally, the bill targets changing how we get our energy by including critical 10-year extensions on existing climate policies, such as the tax credits for installing renewable energy such as solar PV, and tax credits for clean energy production.
So how will this bill help everyday Americans?
Electric Vehicle Subsidies
The Inflation Reduction Act expands existing tax credits for qualified EVs. Americans making no more than $150,000/year (or $300,000 if filing jointly) are eligible for a credit of up to $7,500 for new EVs. Americans making no more than $75,000/year (or $150,000 if filing jointly) are eligible for a credit of up to $4,000 or 30% of the vehicle price, whichever is lower, for used EVs (the sales price must not exceed $25,000). There are limitations on the tax credit, meaning that not every EV on the market will be eligible, so be sure to look into the requirements before buying a vehicle.
Home Energy Efficiency
Each year for the next 10 years, there will be a tax credit for 30% of the cost of qualified home improvement and energy efficiency projects for a total annual limit of $1,200. Homeowners receive these benefits after filing their taxes and cannot claim multiple tax credits for the same work. In addition, homeowners can receive up to $150 for a home energy audit and rebates, or upfront discounts, for basic weatherization (insulation, air sealing, and ventilation).
Efficient Appliance Rebates
In addition to the $1,200 annual home improvement tax credit, the IRA also includes the High-Efficiency Electric Home Rebate Act (HEEHRA), which offers rebates on specific appliances for qualified electrification projects. This includes up to:
- $8,000 for heat pumps for heating and cooling
- $1,750 for heat pump hot water heaters
- $840 for an electric or induction range or cooktop, an electric oven, or an electric heat pump clothes dryer
- $4,000 for upgrading to circuit breaker boxes
- $2,500 for improvements to electrical wiring
The rebates from the HEEHRA are only available to low- and middle-income households, with the per household rebate capped at $14,000. Households cannot claim both the HEEHRA and HOMES rebates (a separate U.S. Department of Energy program for home energy-saving retrofits) for the same equipment.
Investment Tax Credits for Renewable Energy and Energy Storage
The bill also offers 10-year extensions on investment tax credits, which give businesses and individuals a 30% tax credit on the total cost of installation for rooftop solar and energy storage technology and 30% credit for new geothermal heating. Qualifying low-income households will benefit from an additional 10% tax credit for a total of 40%.
The IRA also includes major environmental justice initiatives, with $60 billion in funding to help communities most impacted by climate change—this is the largest investment in U.S. history! For example, there is funding to clean up polluted ports, meaning that Oakland, as a port city, could benefit.
Other initiatives include Climate and Environmental Justice Block Grants to support community-led projects, Neighborhood Access and Equity Grants to support neighborhood safety and affordable transportation access, and a new Clean Energy and Sustainability Accelerator to support the implementation of projects like community solar and EV charging.
What does the IRA mean for the Oakland EcoBlock?
Many of the incentives offered under the IRA may apply to the work scheduled for the Oakland EcoBlock. One great thing that the IRA changed is that nonprofits like the EcoBlock Community Association can now take advantage of refundable tax credits. Given that some of the incentives apply only to homeowners and some could apply to the EcoBlock Community Association, the EcoBlock research team is investigating how the new law and its provisions will affect residents of the block.
The rebates, tax credits, grants, and incentives under the IRA make it easier for communities and companies alike to switch to more climate-resilient technologies—and because the IRA is heavily focused on incentives, rather than penalties, there are significant benefits for all Americans.
Want to learn more? Check out these resources:
- White House Fact Sheets: The Inflation Reduction Act By The Numbers and How the Inflation Reduction Act Lowers Energy Costs, Creates Jobs, and Tackles Climate Change Across America
- Video: The Biggest Climate Bill of Your Life – But What Does it DO!?
- U.S. Department of Energy: Qualified EVs with Final Assembly in North America
- Rewiring America Savings Calculator: How Much Money Will You Get with the Inflation Reduction Act?
Disclaimer: This blog provides an overview of some of the Inflation Reduction Act provisions. It does not constitute professional tax advice or other professional financial guidance. And it should not be used as the only source of information when making purchasing decisions, investment decisions, tax decisions, or when executing other binding agreements.
Cover image credit: Martin Falbisoner/Wikimedia Commons