New financial incentives in 2023 make home electrification upgrades more attractive than ever. Homeowners across the U.S. are eligible for a range of cash rebates and tax credits to improve energy efficiency and go electric under the Inflation Reduction Act. The measure includes $4.5 billion in efficiency and electrification rebates.
Homeowners save 30% on home electrification upgrades
The Energy Efficient Home Improvement credit, or "25C," allows households to deduct up to 30% of the cost of many of the most popular home electrification upgrades from their taxes. The credit covers both the purchase and installation of various electrical appliances. These deductions are limited to $600 per measure, up to $1,200 per household per year—with one notable exception (which we'll cover below).
Diving deeper into home electrification
This federal tax incentive applies to many of the most popular home electrification options available in the U.S. today:
- heat pumps
- electric water heaters
- upgrades to breaker boxes
That last item can be important if you need upgrades to accommodate an additional electric load. To dive deeper into this, see our article "Should I replace my electrical panel?"
Added incentives for heat pumps and water heaters
There's one attractive exception to the $1,200 household limit. Households can deduct 30% of the costs for buying and installing a heat pump water heater and heat pump for their space heating and cooling, up to $2,000.
Added help for low- and moderate-income households
For moderate-income households, there are even greater incentives for things like installing new, efficient electric appliances under the High-Efficiency Electric Home Rebate Act (HEEHRA).
New or used? 2023 is the year to buy an EV
The Clean Vehicle credit, or "30D," offers a $7,500 credit for new electric vehicles and a $4,000 credit for used electric vehicles. Experts (like Rewiring America) expect that incentives will make clean cars the default and affordable choice for everyday Americans. Operating an EV costs' $1/gallon', far more affordable than operating an internal combustion engine car.
Local incentives for heat pumps
In addition to the federal incentives under the Inflation Reduction Act, local programs supporting home electrification are sprouting nationwide.
More than 15 states have specific incentives for heat pumps. The list includes California, Colorado, Connecticut, Illinois, Massachusetts, Maryland, Maine, Michigan, Minnesota, New Jersey, Nevada, New York, Oregon, Rhode Island, and Wisconsin. Cities like New York City are offering their own financial incentives, especially aimed at working families.
Residential solar and battery storage credits
The Residential Clean Energy credit, or "25D," continues an existing program that deducts 30% of the cost of residential solar and battery storage projects from taxes.
New financing options for EV owners
Banks, too, are presenting new options in 2023 that make home EV charging more affordable than ever. For example, Bank of America now offers financing for the purchase and installation of home EV chargers and EVs. The bank says demand for home charging will increase 20X in the next decade.