With high interest rates impacting home sales and lots of great new financial incentives for making energy-efficient home upgrades, many people are reconsidering buying new homes and opting to renovate their existing home instead. However, many of the new home improvement tax deductions and rebates can be confusing to navigate, and sometimes it can be hard to determine which upgrades make the most sense for your home. Whether you plan on staying in your home for a long time, or just want to add value to your home for when you’re ready to sell, modernizing your property can be a smart financial move.
In this post we’ll cover the ins and outs of several new incentives stemming from the new Inflation Reduction Act, and talk about which ones make the most sense from a real estate perspective. While some of the specifics are still forthcoming in 2023, now is a great time to begin planning your energy-efficient home remodel. Keep reading to learn where to get started.
Inflation Reduction Act Energy Rebates For 2023
The Inflation Reduction Act (IRA), which included in its legislation two energy-reduction programs, is a great source for rebates that can save you money on your home renovations. These rebates take effect January 1, 2023 and run through September 30, 2031.
HOMES (Homeowner and Occupant Monetary Encouragement and Stability) Rebate Program:
Coming in 2023, this program, implemented through state energy offices, will grant rebates for whole-house energy saving retrofits completed by Sept. 30, 2031. Upgrades and renovations can include:
- Energy-efficient appliances
- New windows
Homeowners and renters will have to prove that these improvements did, in fact, reduce their energy consumption, as the NRDC explains, “through either modeling, which requires computer software, or measured energy savings.” How much can you get back? That depends on your income and how much you reduce your energy consumption. Projects that model your energy efficiency can get a $2,000 rebate for energy savings of 20-34%, and a $4,000 rebate for savings above that, up to 50% of your costs. If you’re measuring energy savings through your utility bills, you only need to cut usage by 15% to qualify. Lastly, if you are a low- or moderate-income household, your rebate will be doubled to $4,000 and $8,000, respectively, covering up to 80 percent of your total costs. Details about Florida’s implementation haven’t been released yet, so be on the lookout for specifics on how to apply for your HOMES rebate from the Office of Energy soon!
High-Efficiency Electric Home Rebate Act (HEEHRA)
Also coming in 2023, HEEHRA will provide point-of-sale rebates totaling up to $14,000 for low- and middle-income families to make energy-saving upgrades to the electric systems and appliances. For low-income families, HEEHRA will cover 100% of costs up to specified caps. For moderate-income families, the act will cover 50% of costs. HEEHRA will also be administered by the state, which will receive grants from the federal government to cover costs.
- Qualified projects include:
- New heat pump HVAC systems (Max rebate amount: $4,000)
- New heat pump water heaters (Max rebate amount: $1,750)
- Electric stoves and cooktops (Max rebate amount: $840)
- Heat pump clothes dryers (Max rebate amount: $840)
- Circuit panels upgrades (Max rebate amount: $4,000)
- Insulation upgrades and air sealing (Max rebate amount: $1,600)
- New ventilation (Max rebate amount: $4,000)
- Updated wiring (Max rebate amount: $2,500)
Use Rewiring America’s guide “How much money will you get with the Inflation Reduction Act?” to see how much you could get for your own home improvement projects to help you plan accordingly for your home improvement projects in the new year.
New Tax Breaks for 2023
While the Inflation Reduction Rebates are only available to low and moderate-income households, there are other opportunities that don’t have income limits. And even if you do take advantage of HOMES or HEEHRA rebates this year, you may still qualify for additional tax credits and reductions.
Energy Efficient Home Improvement Credit (EEHIC)
The Inflation Reduction Act also expanded previous tax credits for certain home improvements. Beginning in 2023, the new Energy Efficient Home Improvement Credit allows homeowners to receive a tax credit worth up to 30% of total cost of eligible products. The annual cap for all projects is set at $1,200 (with some exceptions, see below*), with the cap for an individual project is $600. Improvements can be made to any home you use as a residence (primary or secondary). Here is a breakdown of how much you can claim:
- Home Energy Audits: $150
- Exterior Door: $250 ($500 total for all exterior doors)
- Exterior Windows and skylights: $600
- Central Air Conditioning: $600
- Electric panels and related equipment: $600
- Heat pump water heaters: $2,000*
- Heat pump space heaters: $2,000*
- Natural gas, propane, oil water heaters and furnaces: $600
- Biomass stoves and boilers: $2,000*
*Can exceed $600 cap on individual items. These tax credits can be claimed on your 2023 tax return. To be sure you (and your improvements) qualify, speak to your tax advisor or accountant first.
Florida House Bill 7071
Signed into law in 2022, this bill provides temporary tax relief for a number of expenditures through “tax holidays”—special time periods where sales tax will not be collected on specific items. While most of the home-improvement-related tax holidays are over, through June 30, 2023 you can skip the sales tax on new Energy Star appliances including washing machines, clothes dryers, water heaters, and refrigerators.
Smart Devices that Can Help You Save on Energy
While smart home devices are not eligible for rebates or tax credits, if you are making updates to your home this year, incorporating new technology makes a lot of sense. Smart devices can not only help you modernize your residence, but they can also help you save money on your energy and water bills. Here are some of the top smart items to consider:
- Smart Bulbs: Not only are smart bulbs LED—consuming 75% less energy than traditional bulbs—you can pair them with your other smart devices (like those enabled with Alex, Siri, or Google Voice) to set schedules or turn them off easily, even when you’re not near the switch.
- Smart Thermostats: Wi-Fi-enabled thermostats allow you to control the temperature in your home to maximize comfort levels while minimizing utility consumption. Away for the day? Turn down the air conditioner, then schedule it to turn back on before you get home. While individual savings may vary, you can expect to save about 8% a year on energy bills.
- Smart Leak Sensors: These devices work in a variety of ways—from detecting electromagnetic field fluctuations to using sensors to detect drips—to find leaks before they create major problems. Not only does they limit wasting water, they can also help you prevent water damage. Check out this list of recommendations from The Spruce to learn more.
Reasons Why You Might Upgrade Your Home
Homeowners may have lots of different motivations behind making energy-efficient upgrades, whether it’s saving money, helping the environment, or simply making much-needed repairs. From a real estate perspective, your purpose for making improvements will probably stem from one of two motives: you’re looking to sell your home, or you’re looking to stay in it—at least for now. Let’s examine both to see which renovations might align best with your housing plans.
If You’re Selling
If you plan on selling your home in the coming year or two, making energy-efficient upgrades and efforts for modernization can pay off in a big way. Not only will they make your home more appealing to buyers and have it stand out among available listings, but updating your home’s outdated mechanical systems and appliances can also help you avoid major inspection headaches. Here are a few things to consider upgrading if you’re preparing to sell:
- Kitchen remodel: Renovating your kitchen is one of the best ways to raise your home’s value. If you’re already remodeling your kitchen, be sure to purchase energy efficient appliances to get rebates and tax credits.
- Updated electrical: If your home’s wiring or electrical panel is out of date, it could be a major issue for potential buyers. Taking advantage of rebates to update them not only adds value to your home, but it also can prepare it for new, energy-efficient appliances (or even solar panels!).
- Updated HVAC: Modern HVAC systems can be an important selling point for buyers—especially in hot climates like those found in Central Florida. Utilizing rebates and credits offset costs for state-of-the-art heating and cooling systems can make good financial sense.
- New windows: Old windows can be an eyesore, and if they no longer have an effective seal, can waste a lot of energy. New windows can be a huge expense and undertaking, and potential buyers will see the value in a home with brand-new, energy efficient ones. With the current tax breaks for energy efficient windows, you can save money while adding resale value.
While all these improvements will surely add value to your home, be sure to do your research first. Before you spend a fortune on upgrades, contact a realtor to discuss which ones make the
If You Plan on Staying in Your Home
Maybe you love your current home and want to make it more energy efficient. Or maybe you don’t want to navigate the current housing market, and are looking for ways to improve your homelife. Regardless of your reasoning, making energy efficient home improvements can save you money on your energy and water bills, make your home more comfortable, or even increase your home’s air quality. Deciding whether you want to Renovate or Relocate can be a tough choice. Ultimately, if you like your home’s location, basic floor plan, or character—or simply find relocating to be too cost prohibitive or inconvenient at this time—consider taking advantage of these home remodeling tax breaks. If you think you may stay in your home in the long term, choose projects that will increase your enjoyment of your house and will pay off the most in terms of energy-cost reductions. And if you do decide to move, know that your upgrades have added resale value. Remember, you don’t have to do everything at once. Many of these incentives can be used year after year, and if there is an annual cap (like those for the EEHIC), you may want to stagger your projects.
Showcase Can Help You Make Smart Home Decisions
We’re proud to be a trusted resource for Florida homeowners and are excited to share all the new home-improvement incentives on the horizon with the residents of Central Florida. Whether you’re looking to buy a new home, sell your current home, or make upgrades to add value and energy-efficiency to your residence, we’re happy to answer all your real estate questions. With offices in Ocala and Gainesville, we offer both convenience and local expertise to all our Florida clients. Reach out to a Ocala Realtor® or Gainesville Realtor® today to learn more about how you can improve your home with energy-efficient upgrades.