The Inflation Reduction Act, Tax Rebates and Heat Pumps

Nicholas Orth, Sr. Manager, Residential Marketing

While the?2022 Inflation Reduction Act?(IRA) has many components, what matters most to the HVAC community and consumers needing to replace their systems is found in two provisions:

• The Internal Revenue Code Section 25C?for homeowners who make qualified improvements of?higher-efficiency HVAC equipment?to their primary residences is extended to 2032. The good news for the industry is that 25C has been around for years. We have a good understanding of what qualifies, and 25C is not funded by a fixed budget.
• The available tax credit has been increased on air conditioners, gas furnaces, and heat pumps. The biggest variable is the owner’s individual tax situation and how much of the credit will qualify — that’s for a tax professional to figure out.

Heat pumps are the rock stars of the IRA

Heat pumps, specifically called out in the IRA, saw a significant increase — up to $2,000, with furnaces and air conditioners up to $600. This is consistent with the government’s goals of promoting electrification while reducing greenhouse gases and our collective carbon footprint. Heat pumps have demonstrated a reduced impact on the environment through:

• Minimal direct emissions
• Indirect emissions due to fossil fuel electricity production
• Cleaner energy with 85% of?new capacity being wind or solar
• Estimated ~50% reduction in carbon dioxide over the next 15 years by?switching from a gas furnace to a heat pump

Simply put, heat pumps transfer heat from outside to inside. The reversing valve allows the flexibility to both heat and cool a given space. Heat pump compressors have three basic types:

• Single-Stage: for entry efficiency
• Two-Stage: for mid-efficiency with two speeds for added comfort and energy savings
• Inverter: for mid-to high-efficiency, with a gradual ramp up and down for fine-tuned comfort, lower sound, and lower energy usage

We're making significant investments in heat pump technology

Many OEMs across the industry are investing in heat pump technology — for Allied Air, it’s a significant area of focus. So you shouldn’t be surprised that the perception that heat pumps don’t work in cold climates is outdated. The technology has improved in the past 50 years and cold climate heat pumps operate at full capacity down to 5°F by increasing compressor speed.

Heat pumps are obviously a smart recommendation. But when advising homeowners on new equipment or replacements, the important caveat is that funds are limited and determined at the state level. There’s a fixed budget and each state has its own plan, which means the process, qualifications, and funding amounts vary by state.?