The Inflation Reduction Act “pumps up” heat pumps

President Joe Biden signed the Inflation Reduction Act of 2022 (IRA) into law on August 16. The IRA aims to alleviate inflation by lowering prescription drug prices, reducing the deficit, and halting global warming.

The largest ever federal legislation addressing climate change, the IRA invests $369 billion in clean energy sources and technologies that improve energy efficiency. Part of this includes offering significant rebates and tax incentives to homeowners who purchase heat pumps.

In fact, many Americans will be eligible for a free heat pump to cool and heat their home in 2023. Wondering if you qualify? Click here to skip ahead!

I’m ready for my new heat pump!

What’s a heat pump?

A heat pump is an appliance that warms and cools your home. It’s a more energy-efficient alternative to a furnace and AC compressor.

In the warmer months, a heat pump pulls heat from the inside of your home and moves it outside. In the colder months, it does the opposite, collecting heat from the outdoor air and moving it indoors.

Heat pumps are most popular in the Southern states. In North Carolina and South Carolina, for example, more than 40% of homes have heat pumps.

Older heat pump models could not heat well in frigid temperatures. So, they are generally not as popular in colder areas of the country. But new technologies let modern heat pumps operate effectively in temperatures of -10℉ and below.

Since electricity powers heat pumps, they’ve been slow to catch on in areas with mostly older homes with gas hookups. Generally, gas is less expensive than electricity, so people with access to a gas utility often prefer to use it for their heating needs.

Why heat pumps?

Part of the IRA funds the development of renewable energy sources, including solar, wind, and hydro. Energy made by these means produces no carbon emissions, so it’s considered “clean.”

The government seeks to ultimately move away from energy sources that burn fossil fuels, including gas, towards clean electricity sources. The first step in that direction is for homeowners to upgrade to energy-efficient electric appliances. Next, the IRA will support an infrastructure that eventually swaps out traditional energy for a cleaner variety.

Besides the enhanced energy efficiency, heat pumps have several advantages over traditional heating equipment, like a furnace:

📏 Space savingsHeat pumps do the job of an air conditioner and a furnace, reducing the amount of bulky equipment in and around your home.
💰 Cost savingsAn AC and heater combined, you’ll only need to purchase one unit instead of two.
✉️ Lower utility billsHeat pumps run more efficiently than traditional furnaces. That’s good for the environment and your monthly bills.
💨 Better air qualityMany heat pumps have dehumidifying and air filtering capabilities, improving your home’s air quality while heating or cooling.
🛟 Improved safetyHeat pumps don’t have potential gas leaks or tip-over dangers associated with other types of heaters.
👂 Less noiseHeat pumps run more quietly than a traditional furnace or AC compressor.

One of the biggest benefits is that buying one could net you hefty savings thanks to the IRA.

What is the HEEHRA?

The IRA offers rebates or tax deductions to homeowners that purchase a heat pump.

The High Efficiency Electric Home Rebate Act (HEEHRA) is the official name of the IRA’s heat pump incentive program. It offers point-of-sale rebates on any heat pump for home heating and cooling up to $8,000. “Point-of-sale” means the rebate amount is automatically deducted from the price at the time of sale – no need to send in for a refund.

The HEEHRA rebates are available for low- and moderate-income households. The amount of each rebate depends on your household income and the heat pump you choose.

Inflation Reduction Act heat pump rebate

If your household income is 80% below your area’s median income, you receive the maximum rebate, covering your new heat pump at 100% up to $8,000. If your household income is 81-150% of your area’s median income, you’ll receive up to 50% of the heat pump’s cost.

To look up your area’s median income, use this tool from Fannie Mae.

You’re not out of luck if your household income exceeds 150% of your area’s median income. These homeowners receive a 30% tax credit of up to $2,000 on new heat pumps.

The HEERHA heat pump rebates are significant for low-income homeowners. According to HomeAdvisor, heat pumps cost an average of $5,792. In most cases, low-income households will get a new heat pump for free.

Middle-income households will save an average of $2,896 on a new heat pump. And above-middle-income households will get an average tax credit of $1,737.60.

graph showing heat pump rebates inflation reduction act

How to get a heat pump rebate

Information about how to get a heat pump rebate isn’t yet available.

State governments will execute the HEEHRA rebates. The Department of Energy (DOE) will likely issue state guidelines in spring 2023.

The IRA heat pump tax credits will likely also go into effect at that time. To receive your tax credit, save your receipt and declare it on your tax return.

When do the heat pump rebates start?

The DOE said in November 2022 that funding will be available to each state beginning in spring 2023. Rebates will available to the public later in the year.

If you can’t wait until then, there is currently a lesser $300 tax credit for heat pumps that meet the Consortium for Energy Efficiency (CEE)’s top-tier efficiency standards

Will a heat pump work in my area?

Heat pumps can work in temperatures below 0℉ and colder. Some manufacturers design special models that perform better in more extreme climates.

However, heat pumps do not perform at their most efficient when the temperature reaches freezing. Many homeowners in cold areas supplement their heat pump with a furnace. Doing this can still reduce energy consumption and net you IRA incentives.

Similarly, your heat pump might not deliver peak cooling performance at temperatures above 100℉. Consider ceiling fans or portable air conditioners to keep comfortable if you live in an area that experiences excessive heat regularly.

Click below to connect with an HVAC professional who can help you choose the right heat pump for your home.

Tell me more about heat pumps (and rebates!)