What's In The New Climate Bill For You? Navigating Savings and Rebates

As a climate-forward, eco-conscious design-build company, we have long been passionate about lowering the carbon footprint of the homes we build. So we are incredibly excited about the recently signed climate bill, the Inflation Reduction Act (IRA). The legislation contains some wonderful opportunities for positive environmental impacts, and we’d be happy to help you navigate its new federal tax credits and rebates. If you're a current or former client, ask us how you can take advantage of the just-passed IRA regulations. If you've not yet considered such improvements, we can help you determine potential savings from these critical climate investments! Even if you have previously applied for a tax credit, and even if the work was done prior to 2022, there are likely ways we can assist you in accessing the credits and rebates.

The information on the bill is brand-new, and we will be meeting with our specialty tax and policy consultants to understand their full implications. As we learn more details, we will update you in future newsletters, so please stay tuned! And please feel free to share this newsletter with friends who may also be interested in learning more about these new climate-friendly laws.

Following is a summary of what’s in the climate portion of the IRA:

- Solar Panels: The bill increases the tax credit (Investment Tax Credit or ITC) for solar panels back up to 30% (up from 26%). Although most of our grids in California are green, or trending green, electricity use will skyrocket as a result of this new bill; so adding solar to your roof is the socially and economically responsible thing to do. Net metering will likely not go away.

- Battery Storage: Finally, a much-needed credit for battery storage of at least three-kilowatt hours. The best use of battery storage is to optimize your relationship with the grid, giving energy back to the grid during the high tier/higher cost hours in the afternoon, when demand is greater and cost for power is higher. Note: if you have a limited budget, we always advise investing other features of an all-electric house (i.e., switching to electric heating/cooling and hot water heating; changing lights to LED fixtures) before investing in battery storage, to get a bigger bang out of your budget.

- Insulation: The most affordable upgrade you can do to your home is to optimize insulation, and the IRA offers a $1,600 rebate to insulate and seal a home. This is low-hanging fruit and a no-brainer.

- Electrical infrastructure: Under the previous tax code, any work needed to upgrade your electrical infrastructure to accommodate solar was able to receive the ITC. This is increased under the IRA, offering up to a $4,000 rebate towards this work (which would cover a significant portion of this cost). There is also a potential $2,500 rebate towards upgrades to wiring. We don’t know if this is an either/or thing at this point, tax credit or rebate, and will be looking into this further.

- Heat Pumps just make sense in Southern California, as we are cooling more than heating the air in our homes. The bill would provide between $2,000 in tax credits or up to $8,000 in rebates, again, depending on how you can access the funds- see below.

- Heat Pump Hot Water Heaters: As many of you know, we love to install the less well-known heat pump hot water heaters. What is exciting about this bill is the rebate of $1,750 to get rid of your gas hot water heater and install a heat pump hot water heater instead. This is really great news for the carbon-conscious!

- Heat Pump Clothes Dryers can receive up to an $840 rebate.

- Energy Efficient Doors & Windows: There are various ongoing credits for installing energy-efficient doors & windows.

- Induction Cooktops: The key to an all-electric house is switching from gas cooking to induction and the IRA offers rebates of up to $1,200 annually (which also can include an electric oven). There are many solid reasons to do so, from reducing dependence on fossil fuels to eliminating a major source of indoor air pollution (insert hyperlink to “gas is toxic” video).

- EV’s: Tax credits for the purchase of EV’s and plug-in hybrids are available, but with caps for higher priced options: $80k for vans & SUV’s and $55k for cars. The credits are available only to those with adjusted gross incomes of less than $150k for single filers, $225k for heads of households and $300k for joint filers. California has rebates as well, and we need to see if these will remain or be canceled out. TBD.

- Rebate eligibility: Homeowners would be able to access up to $14,000 in total rebates, which would be implemented by the State. However, to qualify for this, the household income cannot exceed 150% of your area median income. The median income in most of Los Angeles appears to be $97,900, which would mean you would need a household income of below $146,850 to qualify for the rebates. This puts some of the rebates out of reach for most of our clients - but the tax credits, which are not means tested, would be available to all.

Again, there is so much to digest, including how to determine which mix of tax credits and rebates are available for which household. The bill takes effect after December 31, 2022, but typically will apply to work done prior to the enactment. So, again, please feel free to reach out to us before you do your 2022 taxes - and also, stay tuned for more updates in future newsletters!