FOR YOUR HOME

Take Advantage of Tax Credits & Incentives

With the August 2022 passage of the Inflation Reduction Act (H.R. 5376), energy efficiency, building electrification and home decarbonization projects received a major boost. Increased federal tax credits, point of sale rebates, and income qualified energy efficiency programs are developing.

Here’s what we know about the Inflation Reduction Act (IRA) and the tax credits and rebates that will be coming available for homeowners to make clean energy improvements to their homes.

Federal Tax Credits: Energy Efficient Home Improvements

The 25C Tax Credit (previously named “Nonbusiness Energy Property” credit) has been renamed the “Energy Efficient Home Improvement Credit.” For improvements made after January 1, 2023, households may qualify for a $1,200 annual tax credit (replacing the previous $500 lifetime limit), up to a cap of $600 per measure (with exceptions noted below.) The tax credit may be equal to 30% of the costs for all eligible home improvements made each year. So, you can spread out your home improvement projects over multiple years and apply up to $1,200 in annual tax credits. Claimed on an individual’s tax return when filing the year after improvements are made, eligible measures include:

energy audits (up to $150 credit)
air sealing and insulation
heat pumps (up to $2,000 credit)
heat pump water heaters (up to $2,000 credit)
electric panel upgrades
energy-efficient HVAC systems
energy-efficient windows and doors ($500 total for all exterior doors)

Some installations must meet certain efficiency criteria, like an Energy Star ratings, which varies by item.

This guide from The New York Times provides a good overview of the tax credits available as of February 2024.

This article from BPA provides additional guidance on the federal tax credit requirements.

Colorado Tax Credits and Rebates: Heat Pump Incentives

A new Colorado State tax credit for heat pumps and heat pump water heaters went into effect on January 1, 2024. The heat pump tax credit is now available to install the following types of Energy Star certified heat pumps or other technology:

air-source heat pump
ground-source heat pump
water-source heat pump
combined-source heat pump
heat pump hot water heater
thermal energy network
variable refrigerant flow heat pump system

The Colorado Energy Office has established guidelines for customers to obtain these tax credits. Among these guidelines,

Heat pumps for space heating/cooling must be designed to meet at least 80% of annual heating needs.
A registered contractor must install the eligible heat pump technology.
Registered contractors are required to provide the tax credit to customers as a discount off the installation cost.
Registered contractors complete and submit the necessary paperwork to the Department of Revenue for the installed equipment.
The state will be reimbursing registered contractors through a tax credit when the contractor files taxes.
Customers do not need to file any paperwork to receive the discount as the tax credit is retained by the installing contractor.

HVAC contractors installing heat pumps and heat pump water heaters are encouraged to apply to become a registered contractor.
Additional questions are answered in this FAQ document provided by the Colorado Energy Office.

Those seeking a tax credit of equipment placed into service in 2023 should continue to use form 1322 with the Department of Revenue.

Do I Qualify?

Use this calculator (thanks Rewiring America) to input your zip code, gross income and household size to determine federal, state, and utility tax credits, rebates and incentives that your household could qualify for.

Household Incentive Calculator

Please note, Energy Smart Colorado does not provide tax advice. Tax advisors are best to rely on for guidance on tax credits specific to your household. The following resources were referenced to provide the aforementioned guidance:

Energy.Gov: Making our Homes more Efficient: Clean Energy Tax Credits for Consumers
Electrek: Here’s how the new US tax credits and rebates will work for clean energy home upgrades
Building Performance Association: This guidance document from BPA provides more information about the Inflation Reduction Act and what it may mean to you.
Rewiring America’s Guide to the Inflation Reduction Act
FAQs on Home Energy Rebate Programs: This Department of Energy (DOE) page is updated monthly and provides answers to the commonly asked questions related to the programs funded by the Inflation Reduction Act.
DOE Fact Sheet on incentives.

It will be 2025 before the rebate programs launch in Colorado. Canary Media offers some advice on steps households can take today to prepare homes for the electrification opportunities:

Rebates for home energy upgrades are coming soon. Here’s how to plan.
And the Department of Energy provides additional resources on making clean energy choices today.
Additionally, this database of Colorado energy efficiency and renewable energy tax credits and rebates may provide current incentives.

Learn more about additional tax credit programs, rebates & incentives:

States are now able to apply to the Department of Energy (DOE) for their formula funds to launch the home energy rebate programs. The DOE released guidelines to the states in July 2023, and created this page to answer frequently asked questions.

Colorado Energy Office anticipates applying for the funds in Spring 2024. We expect it will be 2025 before the federal rebate funds will be available to Colorado residents. They are unlikely to be retroactive. Colorado Energy Office will update their Inflation Reduction Tax Credit page as information becomes available. You may also email the Colorado Energy Office at ceo_buildingdecarb@state.co.us with any questions.

Visit this link from the Energy Circle to read more on the latest takeaways (as of June 2023) on the IRA rebate rollout.

RMI has published a resource guide breaking down the IRA – program by program and incentive by incentive.

Xcel Energy has also published an IRA Resource Guide, which will be updated regularly.

Home Efficiency Rebates Program

The Home Efficiency Rebates Program, previously referred to as the Home Energy Performance-Based, Whole-House (HOMES) Rebate program, will allocate up to $4,000 for whole-house retrofits. For those households making less than 80% of the area median income, this amount doubles to $8,000. Homeowners are eligible for rebates on 50% of the cost of projects that cut their home energy use through insulation and air sealing improvements and HVAC installations; (rebates apply for up to 80% of cost for households under 80% of the area median income.)

How do these HOMES Rebates apply?
When a retrofit achieves energy system savings between 20 and 35 percent, the rebate equals either $2,000 or 50% of the project cost, whichever is lower. But when a retrofit achieves energy savings of 35% or more, the rebate doubles to the lesser of $4,000 or 50% of project cost.

HOMES rebates are doubled for low-income (LI) households, those who make less than 80 percent of area median income. Contractors may also claim a $200 rebate for each LI home that achieves 20% or greater energy savings.

How do I measure or identify the 20% or 35% savings?
Our friends at Snugg Pro provide some guidance. You can find a detailed logic model of eligible measures and rebate amounts here.

Home Electrification and Appliance Rebates (HEAR) Program

Limited to households that do not exceed 150% of the area median income, the Home Electrification and Appliance Rebates Program (HEAR), previously referred to as High-Efficiency Electric Home Rebate (HEEHR) program, will provide point-of-sale rebates for electrification. Low- and moderate-income (LMI) households may combine electrification (and air sealing and insulation) projects to a maximum rebate of $14,000 – at 50% of the cost of the qualified electrification project. (Those at 80% AMI will qualify for 100% of their costs to be covered.)

With guidance from the Department of Energy, this HEAR program – and the Home Efficiency Rebates Program – will be established by state energy programs, so Energy Smart Colorado awaits details from the Colorado Energy Office on how the point-of-sale rebates will be implemented. Know that it will be late 2024 before we see these rebates established in Colorado. When the HEAR Program launches, the maximum rebates that may be available for LMI households include:

Heat pump HVAC systems: $8,000
Electrical panel upgrades: $4,000
Electric wiring: $2,500
Heat pump water heaters: $1,750
Insulation, air sealing, and ventilation: $1,600
Electric stoves, ovens and induction cooktops: $840
Heat pump clothes dryers: $840

Can I Combine Home Efficiency Rebates & Tax Credits?

Home efficiency rebates may be combined with state/utility rebate programs
Home efficiency rebates may be combined with the 25C federal tax credit
Home efficiency rebates and HEAR rebates may NOT be combined
Households can make use of rebates from both programs, but may not use both to fund the same project

Rebates for Multi-family Building Retrofits

The IRA also aggressively incentivizes performance improvement for multi-family buildings. When a retrofit achieves 20 to 35% energy savings, the rebate will be $2,000 per dwelling unit, with a maximum of $200,000 per multifamily building. For a multifamily retrofit that achieves 35% or greater, the rebate is $4,000 per dwelling unit, with a maximum of $400,000 per multifamily building.

Tax Credits on Solar and other Renewable Energy investments

The Residential Clean Energy Credit (previously named “Residential Energy Efficient Property Credit”) also allows for a 30% credit (increased from 26%) for installing clean household energy such as solar, wind, geothermal or battery storage (with a capacity of at least 3 kWh).