Heat pumps are an energy improvement for homeowners that becomes a climate and financial winner

Are you thinking of a domestic heat pump? New and expanded government incentives, coupled with a steep rise in utility costs, make it more attractive.

Especially when used in conjunction with clean sources of electricity like the rooftop or community solar, a heat pump – a single electrical device that can replace a homeowner’s traditional air conditioner and heating system – can heat and cool a home with less planetary damage.

These investments are also increasingly attractive to consumers, given the weight of inflation. According to SaveOnEnergy.com, 87% of US homeowners surveyed said they experienced higher prices in at least one household or utility category over the summer. There is another possible bonus: the incentives offered by the recently passed Inflation Reduction Act 2022.

“These incentives not only save you money now and in the long term on your utility bills, but they also put our economy on the right track to reduce the consumption of fossil fuels that contribute to climate change” , said Miranda Leppla, director of environmental law. Clinic at Case Western Reserve University School of Law. “It’s a win-win.”

The use of heat pumps will become more common as governments legislate their adoption. Washington State recently required that new homes and apartments be built with heat pumps. In July, California Governor Gavin Newsom announced a target of 3 million climate-adaptive and climate-friendly homes by 2030 and 7 million by 2035, supplemented by 6 million heat pumps by 2030.

Here are four important things to know about upgrading your home to a heat pump system.

Heat Pump Cost, Savings and Efficiency Considerations

Heat pumps are suitable for all climates and are three to five times more energy efficient than traditional heating systems, according to Rewiring America, a nonprofit organization focused on electrifying homes, businesses and communities.

Rather than generating heat, these devices transfer heat from the cool exterior to the warm interior and vice versa in hot weather. Heat pumps rely on electricity rather than natural gas or propane, both of which emit more carbon than renewable electricity like wind or solar, said Jay S. Golden, director of Dynamic Sustainability Syracuse University Lab.

With installation, heat pumps can range from about $8,000 to $35,000, depending on factors like home size and type of heat pump, according to Rewiring America, but it estimates the savings could add up to hundreds of dollars a year for an average household. . Plus, it’s a long-term game, since the heat pumps most people will consider installing have an average lifespan of 10 to 15 years, according to Rewiring America.

Electricity costs also tend to be more stable, shielding consumers from gas price volatility, said Joshua Skov, a business and government sustainability strategy consultant who also serves as a mentor and instructor to industry at the University of Oregon.

“Although there is an upfront cost, millions of homeowners would save money with a heat pump over the life of the unit,” he said. “You’ll save even more with the federal government covering part of the initial cost.”

Inflation Reduction Act incentives

The Reducing Inflation Act — a broad federal climate protection effort — includes multiple incentives to reduce the cost of property energy upgrades. Those incentives significantly exceed what’s available to homeowners today, said Jono Anzalone, a senior lecturer at the University of Southern Maine and executive director of The Climate Initiative, which empowers students to fight climate change.

For low-income households, the Cut Inflation Act covers 100% of the cost of a heat pump, up to $8,000. For low-income households, it covers 50% of your heat pump costs, up to the same dollar limit. Owners can use a calculator — like the one available from Rewiring America — to determine their eligibility.

If you’re considering multiple green home improvements, keep in mind that the law’s overall threshold for “qualified electrification projects” is up to $14,000 per household.

Federal Tax Credits for Homeowners

For those who exceed the income threshold for a refund, there is the option, from January 1, to take advantage of the non-commercial energy property credit, commonly known as 25C, said Peter Downing, director at Marcum LLP who leads the accounting firm. Tax Credits and Incentives Group.

Homeowners can receive a 30% tax credit for home energy efficiency projects such as heat pumps. In a given year, they can obtain up to $2,000 in credit for the installation of certain equipment such as a heat pump. This credit will expire after 2032, according to the Congressional Research Service.

There may be another tax credit for homeowners who purchase a geothermal heat pump, which is a more expensive option, but lasts longer on average. Homeowners can receive an uncapped 30% tax credit for a geothermal heating installation, according to Rewiring America, which estimates that an average geothermal installation costs about $24,000 and lasts twenty to fifty years. That means the average tax credit for this type of pump will be around $7,200, Rewiring America said.

Rulemaking is still underway for the Inflation Reduction Act. But it’s possible that eligible consumers will be allowed to receive both a rebate and a credit, Downing said. But the calculations likely won’t be that straightforward, based on previous IRS guidance on federally-backed energy rebates. Suppose a consumer is entitled to a 50% discount on a heat pump that costs $6,000. For tax credit purposes, the remaining $3,000 could qualify for a 30% tax credit, resulting in a possible credit of $900, he said.

Financial support from the state and local authorities

States, municipalities and local utility companies may provide rebates for certain efficient appliances, including heat pumps. “Check with each of them, because there are so many different levels of programs, you really have to search,” said Jon Huntley, senior economist at the Penn Wharton Budget Model, who co-authored an analysis of the potential impact. of the Inflation Reduction Act. on the economy.

Also, be sure to check back frequently to see what new state, local, and utility-based incentives may be available, as programs are often updated, Golden said. Reputable local contractors should also be aware of locally available discounts, he said.

Many installers have aggressive financing packages to make installing heat pumps more feasible, Anzalone said.