Billions in Rebates

When will the Inflation Reduction Act’s (IRA) home improvement rebates be available? It’s the (literal) billion-dollar question.

But before we get into the when, let’s review the what.

In my last article, I discussed the 25C Efficiency Tax Credit. Tax credits differ from rebates in that the tax credit is applied against money a person owes the IRS. When filing taxes, a homeowner with an efficiency tax credit will owe less, and either pay less or get a refund check.

IRA tax credits are available now to homeowners for their 2023 tax returns. In contrast, the IRA rebates are applied against the cost of the home improvement so that the homeowner pays less to the contractor for a qualifying installation. IRA rebates have yet to hit the streets.

With this important distinction in mind, we can move to an explanation of what IRA rebate programs are – the focus for this article.

The IRA authorizes two different types of rebates, which states will then offer as two distinct rebate programs. For both of these programs, states must reserve about 40% of the rebates for low-income households, and 10% must go to upgrading multifamily buildings.

Take the Southern PHC survey on awareness of IRA tax incentives.

Electrification Rebates $4.5 Billion (HEERA)

The Electrification Rebate can provide up to $14,000 for each income-qualified household. For households with more than 80% Area Median Income (AMI), it can cover 100% of the install. For households that fall within 80% to 150% AMI, it can cover up 50% of the install cost.

These rebates are meant to be applied at the point of sale, meaning the contractor will deduct the rebate amount from the total cost to the homeowner and then be reimbursed by the program.

If you are thinking of expanding your heat pump business with these rebates, know that you will also have to model energy bill impacts using program-approved software. This is to avoid the unintended consequence of a homeowner’s bills increasing because they live in a service area where electricity costs significantly more than natural gas or propane.

HOMES Rebates $4.3 Billion

The second rebate program is called HOMES or the Home Efficiency Rebate. This program will require contractors to do a comprehensive energy audit, including utility-bill calibration with a BPI 2400 compliant tool in order to model energy savings to qualify for the rebate.

It also requires a third-party certification for the installation, like the kind my company Pearl Certification issues.

A minimum efficiency gain of 20% is required to take advantage of this rebate program. Note that while the legislation does not require a homeowner be income qualified to take advantage of the Home Efficiency Rebate, individual states can modify their programs to include an income qualification.

While rebates from these IRA programs can be combined with an IRA tax credit, they cannot be combined with each other for the same installation. In other words, an income-qualified homeowner could install a heat pump and get both the tax credit and Electrification rebate, but she or he could not take advantage of an Electrification and Home Efficiency Rebate for that heat pump.

Timing

Given the Inflation Reduction Act was signed Aug. 16, 2022, you might be asking when will the Electrification and Home Efficiency Rebates be available? Well, the answer to that question hinges on when your state energy office launches its program, and there are more than a few factors involved with that.

States have to get their applications into the US Dept. of Energy by Jan. 25, 2025 or lose their funding, which will then be reallocated among states that applied. Check with your state energy office to see if they plan to apply for their funding. To date, the only state we know of that has said they will not take the funding is Florida.

The applications for these rebate programs are complicated because the federal government requirements associated with them are also – can you guess? – complicated. They include everything from an Implementation Blueprint, to a Community Engagement Plan, to a Market Transformation Plan, approved software, certification provider, low-income household targeting, data transfer, consumer privacy policy, and much more. The states’ goal is to make it as simple as possible for contractors, and that means a lot of behind the scenes, thoughtful work on program design before they even get to implementation.

That said, many states have already issued RFIs and RFPs for program design. A few have issued RFPs for program implementation, and we expect the first programs to launch at the end of Q2 or in Q3 of this year.

Given we are months away from these programs meaningfully impacting your business, you still have time to prepare. What you can and should be doing to prepare will be the topic of my next article.

To learn more about Pearl Certification and read other articles in this series as they become available, visit the Southern PHC Pearl Certification page.