Written By: Natalie Packert
On August 16, 2022, President Joe Biden signed the Inflation Reduction Act into law, a bill that has been long awaited by Democrats.[1] The bill’s purposes are: investing in healthcare by making health care and prescription drugs more affordable, taxing corporations, and battling climate change by offering more sustainable energy solutions to Americans. Specifically, about $370 billion will be used for climate change efforts, some of which will go towards tax credits and rebates so Americans can save thousands on energy efficient appliances, electric vehicles, and renewable energy sources for their homes.
So, how will Americans actually save money? The answer is not yet completely clear. But the Biden administration created a website that sheds some light on its money-saving initiatives. The website identifies a number of ways Americans can save money by making changes around their homes.
- Federal Tax Credits
First, homeowners can claim a federal tax credit on home energy efficient improvements up to 30 percent off.[2] These kinds of improvements are installing energy efficient insulation and windows. Better insulation will save Americans on their monthly gas and electric bills too.[3]
- Electric Vehicles
Second, starting in 2023, Americans may receive a tax credit of up to $4,000 for purchasing a used electric vehicle and up to $7,500 for a new electric vehicle.[4] There are several limitations on this credit. The vehicle must have been manufactured in North America and car manufacturers that have sold over 200,000 electric vehicles in 2022 do not qualify for the electric vehicle credit. This means that if you are looking for a car before the end of 2022, you should shop at a Ford, Honda, or Subaru dealership if you hope to receive the tax credit. In 2023, Americans will be able to qualify for the tax credit if they purchase electric vehicles made by G.M., Toyota, and Tesla.[5] Check to see if the car you have your eye on qualifies here: https://www.irs.gov/businesses/irc-30d-new-qualified-plug-in-electric-drive-motor-vehicle-credit.
- Electric Heat Pumps
Third, homeowners can receive a federal tax credit up to $2,000 to offset the cost of the purchase and installation of an electric heat pump.[6] Further, depending on their income, Americans can receive up to $8,000 from their state rebate programs.[7]
- Rebates
Fourth, rebates are available for Americans who purchase and install energy efficient appliances. Air conditioners, dryers, and electric induction stoves are a few appliances that qualify for the rebate. The rebates are up to about $840 for electric stoves, cooktops, ranges, and ovens.[8] These rebates will be issued by states, so the amounts issued will vary.
Conclusion
Overall, 100 million American Households may save up to $37 billion with these tax credits and discounts. Even if you choose not to make any of the household improvements, the law is pushing for less expensive, more sustainable sources of energy. To see if your household qualifies for any of the household electrification incentives, check out this website here: https://www.rewiringamerica.org/app/ira-calculator. (Upfront discounts and tax credits!). In sum, the Inflation Reduction Act could help fight climate change by offering greener energy solutions, while also saving Americans money.
[1] Kelly Anne Smith, The Inflation Reduction Act Is Now Law – Here’s What It Means For You, Forbes (August 23, 2022, 8:56 AM), https://www.forbes.com/advisor/personal-finance/inflation-reduction-act/
[2] Id.
[3] Vanessa Glavinskas, 8 Ways the Inflation Reduction Act Can Save You Money, Environmental Defense Fund, (September 8, 2022), https://www.edf.org/article/8-ways-inflation-reduction-act-can-save-you-money
[4] Id.
[5] Coral Davenport, How the New Climate Law Can Save You Thousands of Dollars, N.Y. Times (September 13, 2022), https://www.nytimes.com/2022/09/13/climate/climate-law-tax-credits.html
[6] Davenport, supra note 5.
[7] Id.
[8] Glavinskas, supra note 3.