Tax credits and rebates can help bridge the affordability gap of energy efficiency upgrades for your home, allowing you to lower your energy use and save money in years to come.
But first, knowing the difference between a tax credit and rebate is important. A rebate is a payment for purchasing or installing a qualified product or home improvement. Depending on how the rebate program is set up, it may be provided at the time of purchase or applied for and received after installation. In some cases, a rebate is provided as a cash payment to those who complete eligible projects.
A tax credit is a dollar-for-dollar amount that taxpayers can report on their tax documents to reduce the amount of taxes owed. You apply for a tax credit when you file your taxes, so it typically takes longer to reap the benefits versus a rebate.
According to Energy Star, homeowners can qualify for up to $3,200 annually in federal tax credits for energy efficiency upgrades. Federal tax credits are available for heating and cooling system upgrades, including heat pumps, furnaces, central air conditioners, boilers and geothermal heat pumps.
Tax credits for Energy Star-rated heat pump water heaters cover 30% of the project cost, up to $2,000. You can also improve your home’s envelope—the barrier that separates the inside from the outside—with tax credits for insulation, windows and skylights.
If an energy efficiency upgrade requires improving the electrical panel in your home, there’s a tax credit for that, too. You can receive 30% of the cost of the panel upgrade, up to $600.
These federal tax credits are available through 2032. You must own the home you’re upgrading, and it must be your primary residence. Federal tax credits only apply to existing homes in the U.S., not new construction.
The Inflation Reduction Act of 2022 expanded available funding for many home upgrades. The act allocated $8.8 million for home rebate programs to be implemented at the state level, and this funding is offered in two different programs.
The HOMES program allows up to $8,000 per home for standard-income households. Higher rebates are available for low- to moderate-income households. The HEAR program offers rebates of up to $14,000 per home for qualified, efficient electrical equipment for low- to moderate-income households.
These programs are designed to bolster existing programs and should be available in late 2024 or early 2025. Check with the Texas Comptroller’s Office at comptroller.texas.gov to learn more.
