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.

Colorado Tax Credits and Rebates: Heat Pump Incentives

In 2023, a new Colorado State tax credit and sales tax exemption for heat pumps and heat pump water heaters goes into effect. The tax credit (10%) and sales tax exemption (2.9%) add up to an additional 12.9% discount on the price of the equipment, not including installation charges. The 10% tax credit and state sales tax exemption also extends to electrical panel upgrades (if needed for the heat pump or heat pump water heater installation) and energy storage systems.

Passed by legislative bill SB22-051, this tax credit and sales tax exemption is only valid for purchases in 2023 or 2024. Note that the tax credit applies as long as the homeowner pays enough state taxes.

Do I Qualify?

See if your household qualifies for these federal programs. Use this calculator (thanks Rewiring America) to input your zip code, gross income and household size to determine federal tax credits and rebates that your household could qualify for.

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:

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

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). And this credit rolls back to 2022, qualifying any solar equipment placed in service after January 1, 2022 for the 30% credit.

Home Energy Performance-Based, Whole House (HOMES) Rebates

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.

Can I Combine HOMES Rebates & Tax Credits?
  • HOMES rebates may be combined with state/utility rebate programs
  • HOMES rebates may be combined with the 25C federal tax credit
  • HOMES and HEEHR 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.

High-Efficiency Electric Home Rebates (HEEHR)

Limited to households that do not exceed 150% of the area median income, the 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 HEEHR program – and the HOMES Rebate 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 may be late 2023 or 2024 before we see these rebates established in Colorado. When the HEEHR 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

Energy Smart Colorado transforms the local energy efficiency market and stimulates home and business energy improvements through access to information, capital and a skilled workforce. 



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