Q: What is the Inflation Reduction Act?
A: The Inflation Reduction Act of 2022 (IRA or Act) is a law designed to advance clean energy and reduce greenhouse gas emissions through support for investment in domestic energy production, energy efficiency, and electrification. The legislation provides over $10 billion in rebates and tax credits to help households install important home upgrades, increase energy efficiency, and use renewable energy.
Q: When will the IRA go into effect?
A: The Act was signed into law on August 16, 2022. The Act includes multiple programs designed to assist owners, renters, and landlords of single- and multi-family homes and buildings. Some energy savings programs, such as tax credits, are already available to support home improvement projects, while federal and state agencies are still working to develop rules and guidelines for other programs.
Q: How could my home benefit from the IRA?
A: The Act includes tax credits and rebates designed to reduce the cost of increasing your home's energy efficiency and of transitioning to clean energy sources. Specifically supported measures include weatherization, distributed energy resources (solar PV and batteries) and various forms of electrification, including support for high-efficiency heat pumps, induction cooktops, heat pump hot water heaters and electrical upgrades.
Q: How does the IRA address climate change?
A: About 20% of all greenhouse gas emissions come from the residential housing sector. The Act provides financial incentives to reduce energy use and transition to clean energy sources.
Q: How does the IRA work with the Mass Save energy efficiency programs to help me save money?
A: In addition to tax credits that taxpayers can claim directly, the Act includes almost $8.6 billion in federal grants issued to individual state energy offices to develop and implement rebate and incentive programs. In Massachusetts, this will be administered through the Department of Energy Resources. The Mass Save Sponsors are coordinating with the Massachusetts Department of Energy Resources in the development of energy efficiency programs and offerings that utilize the IRA funds.
Q: Do I need to wait for the IRA funded programs to be made available before I start an energy efficiency project?
A: The Mass Save Sponsors already offer significant rebates and incentives designed to save homeowners, renters, and landlords money through supporting energy efficiency solutions that lower energy costs. While the IRA’s programs continue to roll out, Massachusetts residents and businesses can make energy efficiency improvements now with the existing Mass Save program offerings and federal tax credits. Find more information about Mass Save residential rebates and incentives here, and review our guide to IRA tax incentives, which the Mass Save Sponsors co-created with Rewiring America, to learn how you can benefit today.
Q: Does the IRA offer rebates for home energy improvements?
A: Yes. The IRA creates two rebate programs to promote home energy efficiency and home electrification called the Home Efficiency Rebates Program and the Home Electrification and Appliance Rebates Program. The federal Department of Energy will allocate these funds (over $8 billion in total) to energy offices in all 50 states, including around $145 million to the Massachusetts Department of Energy Resources (“DOER”). DOER is developing a plan to allocate these rebates, and the Mass Save Sponsors are coordinating with DOER to ensure that these rebates complement existing Mass Save incentives.
Q: What is the Home Efficiency Rebates Program?
A: Homeowners and landlords of single- and multi-family homes can benefit from savings with the Home Efficiency Rebates program. Program eligibility is not income-based and instead measures the actual performance of your whole-home energy efficiency and electrification improvements. Further details will be developed as the U.S. Department of Energy issues guidance to state energy offices like DOER, which will administer the Home Efficiency Rebates in Massachusetts.
Q: What is the Home Electrification and Appliance Rebates Program?
A: The Home Electrification and Appliance Rebates Program includes rebates for low- and moderate-income households (or those working on their behalf) that install new, efficient electric appliances. Further details will be developed as the U.S. Department of Energy issues guidance to state energy offices like DOER, which will administer the Home Efficiency Rebates in Massachusetts. Mass Save also helps Massachusetts low- and moderate-income households make energy efficiency improvements through our existing, no-cost Mass Save offerings. Check out our income-based programs to learn how you can take advantage of these offers.
Q: Does the IRA offer tax credits?
A: Yes, the Act extends and increases certain tax credits that are available to consumers who reduce energy use and emissions from their homes by investing in energy efficiency and renewable energy.
Q: Can I claim a tax credit for eligible home improvements under the IRA?
A: The Act reinstituted and increased the Energy Efficient Home Improvement Credit, which allows households to credit up to 30% of the cost of energy efficiency home upgrades against their taxes. Depending on the equipment or improvement made, this credit can total up to $3,200 per year for residential efficiency and electrification upgrades. Households are eligible for up to $1,200 per year for weatherization, including insulation and efficient windows and doors, as well as electrical panel upgrades installed in connection with a heat pump. Households can also claim an additional $2,000 for electric heat pumps and heat pump water heaters. The full credit is available for home improvements made starting in 2023. Please review our guide to IRA tax incentives, which the Mass Save Sponsors co-created with Rewiring America, to learn more about this tax credit.
Q: Does the IRA offer tax credits for installing solar power, geothermal heat pumps, or battery storage systems?
A: The Act extended the Residential Clean Energy Credit, which allows households to credit up to 30% of the cost of installing solar panels, geothermal heat pumps, and batteries against their taxes. This credit is available for solar and geothermal heat pumps installed starting in 2022, and for residential batteries installed starting in 2023. Massachusetts customers installing ground source heat pumps as their primary source of heating may receive up to $15,000 from the Mass Save Program. You can find further details and information on how to enroll here. Massachusetts customers with residential batteries are eligible to participate in the Mass Save ConnectedSolutions Program and have the potential to earn up to $1,375 per year based on an average 5-kW battery. You can find further details and information on how to enroll in ConnectedSolutions here.
Q: How do Mass Save rebates factor into the calculation of tax credits?
A: The value of Mass Save rebates is deducted from the project cost prior to calculating the value of the tax credits.
Q: How can developers benefit from the IRA's tax credit opportunities?
A: The Act extended and increased the New Energy Efficient Home Credit, which provides up to $5,000 to developers to build energy efficient single-family homes and units in multi-family buildings. To qualify for the credit, these homes and buildings must meet the U.S. Department of Energy's ENERGY STAR Residential New Construction requirements or be certified as Zero Energy Ready Homes. (The latter are verified by a qualified third party as being at least 40% more energy efficient than a typical new home.) The credit is available for qualified homes sold starting in 2023.
Q: Does the IRA offer tax deductions for commercial buildings?
A: The Act significantly increased the Commercial Buildings Energy Efficiency Tax Deduction, which allows building owners constructing new buildings or undergoing major renovations to deduct the cost of qualified energy efficiency improvements up to a maximum of $0.50 to $1.00 per square foot for projects achieving 25 to 50 percent reductions in energy cost compared to a building meeting the ASHRAE 90.1 standard. These incentives quintuple for projects that meet prevailing wage and apprenticeship requirements.
The Act also adds a new alternative option to claiming the Commercial Buildings Energy Efficiency Tax Deduction. This option is available for building owners that reduce the building’s energy use intensity (EUI) by 25% or more. This path to claiming the tax deduction allows the owner to deduct the cost of qualified energy efficiency improvements up to a maximum of $.50 to $1.00 per square foot for projects achieving 25 to 50 percent reductions in EUI over baseline, with the same increase in incentives for projects that meet prevailing wage and apprenticeship requirements.
Q: Does the IRA offer tax incentives for commercial and industrial developers who invest in ground source heat pumps and on-site renewable energy generation?
A: Yes, the Act extended and increased clean energy tax credits for developers of renewable energy projects using solar, wind, energy storage, ground source heat pumps, and other renewable energy technologies. Customers installing these projects can claim a tax credit of up to 30% or more of the cost of the energy investments if certain requirements are satisfied, such as projects under 1 MW in size or that use prevailing wage and apprentice labor, as well as for projects using domestic content and in low-income communities.
Q: Does the IRA have other programs to benefit under-resourced communities?
A: Yes. The U.S. Environmental Protection Agency is working to implement the Greenhouse Gas Reduction Fund. The GGRF will fund three programs with a strong focus on low- and moderate-income communities. The National Clean Investment Fund will use $14 billion to create a network of “green banks” around the country to finance the deployment of technologies that reduce greenhouse gases. The Clean Communities Investment Accelerator will allocate $6 billion to community lenders in low- and moderate-income communities. Finally, the Solar for All will deploy $7 billion to support residential solar in low-income and disadvantaged communities.
Q: What is the timeline for receiving a tax credit or an eligible cash rebate under the IRA?
A: Tax credits are available for improvements made to your home starting in 2023. With respect to cash rebates, the Act does not include any specific implementation timeline. The federal government recently opened the application for rebate funds to individual states, and Massachusetts DOER will need to create new programs to oversee these funds, including determining cash rebate values and eligibility rules. The Sponsors of Mass Save look forward to collaborating with our partners in Massachusetts state government to design and implement approaches that allow customers to leverage these new sources of funding when taking advantage of complementary offerings from the Mass Save programs. We will continue to provide updates through MassSave.com as additional details become available.
Disclaimer: This summary does not represent tax advice. Outside tax counsel may be required to consider tax credit project structure, and rules and guidance from the Federal government and the Massachusetts government are pending.
Last updated: July 28, 2023