The HVAC industry is understandably excited over the tax credits and rebates available through the federal Inflation Reduction Act (IRA). The legislation provides billions of dollars over 10 years to incentivize Americans to make energy-saving upgrades, such as adopting heat pumps, improving insulation, and installing solar panels. This will create a significant growth opportunity for HVAC contractors who can meet the rising consumer demand for these products.

In fact, many HVAC contractors are already trying to figure out how to incorporate these incentives into their marketing campaigns, as some customers may be eligible for up to $14,000 in rebates for energy-efficient improvements (including $8,000 for heat pumps). The problem is, nobody quite knows what the final rebate programs will look like, as they will vary from state to state. That’s because Congress structured the rebate programs to be administered by state energy offices, with the Department of Energy (DOE) providing guidance and oversight. The DOE is currently formulating program guidelines, which are scheduled to be published later this summer.

Once those guidelines are available, states have until August 16, 2024 to submit their rebate plans to the DOE for approval. If the DOE finds their plans to be satisfactory, funds will be released so that the states can implement their rebate programs (the amount of funding available depends on the population of the state). DOE anticipates that many households across the country will not have access to those rebates until late 2023 or early 2024.

And, remember, that money is not a given. States must opt into the rebate programs by submitting an application to DOE, detailing how they intend to distribute rebates to its residents. DOE must also approve the application before the states receive funding. States that fail to submit an application will not receive federal dollars for energy-efficient upgrades, and that money will be redistributed to states that are participating in the program.

States will be responsible for creating the rules for two different rebate programs. The one that is of most interest to HVAC contractors is likely the High-Efficiency Electric Home Rebate Act (HEEHRA), which offers up to $14,000 in point-of-sale rebates to low- and moderate-income homeowners to electrify their homes (e.g., install a heat pump). Homeowners meeting 80% to 150% of the area median income requirement can receive a rebate for up to 50% of the project cost, while those earning less than 80% of their area median income may receive a rebate for up to 100% of the project cost.

The other program is the HOME rebate, which is a performance-based whole home program that offers rebates up to $2,000 for energy-saving retrofits that reduce energy use by 20% or more, and up to $4,000 for retrofits saving 35% or more. There are no income limits for this rebate (although lower-income homeowners are eligible for twice the rebate amounts), but third-party verification will be required to ensure the improvements achieve the promised energy savings.

These rebate programs are separate from the Energy Efficient Home Improvement (25C) tax credit, which went into effect at the beginning of 2023. Under this program, homeowners can receive up to 30% for qualified energy-efficient improvements, including up to $2,000 for the installation of a high-efficiency heat pump. There are no income limits for this tax credit, but it can only be utilized by homeowners who have a tax liability.

While each state will be crafting its own rebate program, there are some broad guidelines that they must follow. For example, as noted earlier, some rebates will be given at the time of installation (point of sale), which means contractors will likely have to wait to be reimbursed from the state. Income will also need to be verified for certain rebates, but it is not certain who will be responsible verifying the homeowner’s financial information to ensure they qualify for the rebate(s).

There are also no installation guidelines, so there is concern that if improvements are not made to the building envelope (e.g., more insulation), then homeowners may find that their electric bills are higher after their heat pump is installed. DOE will hopefully provide more direction on these issues when it publishes its guidelines later this year.

Until then, contractors should pay attention to what’s going on in their states regarding the rebates. There is also still time to talk to state energy officials about how rebates for energy-efficient upgrades will be implemented. But time is of the essence.