Home Energy Rebates: the definitive guide

The federal Inflation Reduction Act (IRA) of 2022 makes it more affordable to install a wide variety of home energy efficiency upgrades, including heat pumps, through a capped 30% tax credit.

However, a lesser known provision of the IRA provides even bigger incentives: up to $8,000 for heat pumps, $4,000 for electrical panel and wiring upgrades, and additional incentives for ENERGY STAR appliances, air sealing, insulation, and more.

In fact, a household can receive up to up to $14,000 in incentives for electrical appliance upgrades and $8,000 for insulation and weatherization. On top of this, the incentives are available upfront, which means they are used to reduce the invoice price of the project, and you don’t have to wait to receive the rebate. There is also a special category for low-income households. Depending on the project, you could even get an electric appliance installation, such as a heat pump or electric stove, for free – including any electric panel upgrade that is needed. This is an incredible benefit that’s not very well publicized.

The downside is that some rebates are available only to low- and middle-income households. However, depending on where you live and the number of people in your household, the income threshold can be surprisingly high. For example, in my county in New York state, a household of 4 is still eligible with an annual income up to almost $94,000.

However, even if you are above the middle income threshold, there is still a rebate available to make your home more energy efficient through insulation and other upgrades.

When are these rebates available?

There are currently 11 states with rebates currently available:

• Arizona (through the Arizona Office of Resiliency)
• California (through the California Energy Commission)
• Colorado (through the Colorado Energy Office)
• District of Columbia (through the Department of Energy and Environment)
• Georgia (through the Georgia Environmental Finance Authority)
• Maine (through the Maine Energy Office)
• Michigan (through the Michigan Agency for Energy)
• New Mexico (through ECAM)
• New York (through NYSERDA)
• Rhode Island (through the State of Rhode Island Office of Energy Resources)
• Wisconsin (through Focus on Energy)

More states and territories will be coming soon. You can read more about that toward the end of this article.

Major name confusion: HEEHRA, Home Energy Rebates, HEAR, HOMES Rebates, and more

The first thing that consumers need to know is that the name of the rebate program depends on the state in which you live. While the federal government provides the funding and sets the general program requirements, it’s up to state, territorial, and tribal governments to apply for and administer the program. Currently 11 states have active rebate programs available, and all but one state or territory are in the process of launching their programs. Only South Dakota has indicated that it will not be participating.

This means that if you are a consumer who is looking to apply for this rebate, you will need to look up the program name for your state or territory. I’ll maintain a list of active programs later in this article.

This program is often incorrectly referred to by an earlier name: HEEHRA, or the High-efficiency Electric Home Rebate Act. This is because it was proposed as a standalone bill in Congress that was ultimately folded into the Inflation Reduction Act that was passed in 2022. HEEHRA was never passed into law on its own, but many articles still refer to this earlier name.

Instead, the Department of Energy – the federal agency responsible for funding this program – refers to it as Home Energy Rebates¹, so that’s the name we’ll use here.

There are two parts to the Home Energy Rebates program, and unfortunately these have their own names.

The HOMES Rebates for energy savings

The Home Owner Managing Energy Savings or HOMES Rebate falls under Section 50121 of the IRA² and covers upgrades that improve a home’s energy efficiency by at least 20%. Unlike other incentives, the HOMES Rebate does not specify specific technologies or products that qualify. Instead, you must hire a qualified contractor who will perform an energy analysis of your home to determine its baseline energy usage and recommend retrofits that will reduce your heating, cooling, and electricity usage.

Most likely, their recommendations will include projects such as insulation, air sealing, and LED light upgrades.

High-efficiency Electric Home Rebate Program

The High-efficiency Electric Home Rebate Program or HEAR falls under Section 50122 of the IRA and provides rebates for home electrification projects, including heat pumps for home heating and cooling, heat pump hot water heaters, heat pump clothes dryers, ENERGY STAR electric ranges, electric panel upgrades, and more.

The intent of home electrification is switching away from non-renewable resources like natural gas and propane to electricity, which can result in lower utility bills for the homeowner and is better for the environment. Non-emitting sources of electricity are less than half of US power generation, with renewables responsible for 21% and nuclear about 19%³. While that’s less than half, this number is increasing annually due to the low cost of renewable energy technology and state-level targets to increase carbon-free sources of electricity.

The electrification goal is why you can get a rebate for an electric range, whether or not it’s a high efficiency induction or a conventional cooktop. The important detail is that the electric appliance must either be for a newly built home or replace an existing fossil fuel appliance. You can’t use the HEAR program to upgrade an existing appliance.

Crucially, the HEAR program also covers upgrades to an electrical panel and wiring that might be needed to support the installation of a high current appliance like a heat pump. Upgrades like that can cost thousands of dollars and be a barrier to homeowners who want to make the switch to electricity.

Bottom line: look up the program for your state

All these acronyms are a big pain for consumers who are trying to learn about these incentives. Not only are there multiple names associated with the Home Energy Rebates, but the HEEHRA name in common usage is incorrect.

On top of that, both the Home Energy Rebates and the IRA 30% tax credit, which is known officially as the Energy Efficient Home Improvement Credit (EEHIC), are part of the Inflation Reduction Act, which further adds confusion.

The bottom line is you should look up the rebate program for your state, territory (such as Puerto Rico), or tribal government. (Note: tribal governments are only responsible for applying for the HEAR appliances rebates. If you live in a federally recognized tribe and wish to apply for the HOMES Rebate, consult your state government instead.) For example, in New York, this program is administered by NYSERDA and is known as EmPower+.

To help clarify things, we’ll list state-level programs later in this article.

Income limits for the Home Energy Rebates

Some rebates have eligibility limits based on income. The income limits are based on the median income in your area as reported by the Department of Housing and Urban Development and the number of individuals in a household.

In addition the HOMES Rebate (for energy efficiency) and the HEAR program (for electric appliances) have different income limits:

• HOMES Rebate (for higher rebate tier): less than 80% of an area’s median income (however, some rebate is available for any income level)
• HEAR program: less than 80% of an area’s median income for the low income incentive
• HEAR program: between 80% and 150% of an area’s median income for the moderate income incentive

The income limit also varies according to the number of people in a household. For example, in my county in New York state, an individual living alone with an income of $36,420 or less would meet the 80% income threshold while an income of $54,250 would meet the moderate income threshold.

However, if this household had 4 family members, an income of $70,056 or less would meet the low income threshold and $93,408 or less would meet the moderate income threshold. And if you instead lived in New York county (which contains Manhattan), the moderate income threshold for that same 4-person household would be $124,400.

As you can see, there can be significant variation depending on where you live and the size of your household, so don’t assume that you don’t qualify for a rebate just because you have a higher income. In addition, the HOMES Rebate is available to any household, regardless of income.

To find out the income eligibility for your household, check with your state program.

Rebate amounts and eligible projects for the HOMES Rebate

To qualify for the HOMES Rebate, you need a qualified contractor to provide an energy analysis of your home and recommend energy-saving improvements. The size of the rebate you are granted depends on the energy savings of the project, and this is where it gets a little bit complicated.

There are two approaches the Department of Energy specifies. One approach allows the contractor to estimate the energy savings using the industry standard BPI-2400 method. This is known as the modelled approach.

The other approach is to measure the actual energy savings before and after the project. This is called the measured approach.

With either approach, the maximum size of the rebate differs according to household income. Here’s a summary:

Again, these income thresholds depend on your location and number of people in a household, so look up your state program to find out the exact numbers for you.

There are rebates available to owners of multi-family homes, which the government defines as a building with five or more rental units. If at least 50% of the units are rented to LMI (low and moderate-income) residents, the project can qualify for higher rebates.

Difference between measured and modelled approaches for the HOMES Rebate

For a homeowner, the rebate payment is the most important part of this program, so the details of how the modelled and measured approaches work are less important than how much of a discount you receive in the end.

That’s a conversation to have with your contractor. With both approaches, you need between 9-12 months of utility bills, so if you just moved into your home and don’t have previous utility bills available, you’ll have to use the measured approach. When using the measured approach, the contractor will use your utility bills 9-12 months after the work is done to confirm the energy savings.

The amount of the rebate is based on your local energy costs and the actual amount of energy saved in kilowatt-hours. The formula is complicated, but the Department of Energy does provide an Excel spreadsheet you can download to calculate your payment⁴. The instructions are on the first tab of the spreadsheet.

Here’s what the calculation looks like for my state:

The top part of the table is the estimated household energy use after the energy retrofits are done, based on energy usage before the project, and the bottom half is the incentive payment rate. Market rate refers to higher income households while LMI refers to low- and moderate-income households.

No matter which approach the contractor chooses, you will receive the rebate as an upfront discount on your invoice – there’s no waiting.

Rebate amounts for the HEAR program

The High-efficiency Electric Home Rebate program provides big rebates for major electric appliances, including heat pumps, stoves, hot water heaters, and clothes dryers.

This program (unlike the HOMES Rebate) is only available to low- and moderate-income households. Here’s a summary of the program:

• Heat pumps, electric ranges and cooktops, heat pump clothes dryers, and heat pump hot water heaters qualify for rebates.
• The appliance must either be for a new construction, replace a fossil-fuel powered appliance, or be for a first-time purchase of that appliance (for example, a heat pump clothes dryer for a home without an existing dryer). It can’t be used to upgrade an existing electric appliance.
• Wiring and electrical panel upgrades qualify for the rebate, which can sometimes cost more than the appliance itself. If you have a panel with less than 200 amp capacity, this program is a good way to upgrade at a significant discount (or even free).
• You can receive a maximum total rebate of $14,000.
• The maximum rebate will also depend on whether you are low- or moderate-income (more about that below).

Here’s a summary of the rebate amounts:

The maximum rebate is limited by your household income category.

If your household income is less than 80 percent of your area’s median income, 100% of the project cost will qualify for rebate, up to the limit for each appliance.

If your household income is 80 percent or more but less than 151% of your area’s median income, 50% of the project cost will qualify for rebate, up to the limit for each appliance.

Let’s use an example. Let’s say that you want to purchase a $1,000 electric range and fall into the low household income category. 100% of the appliance cost is eligible, but the maximum rebate is $840, so your out-of-pocket cost will be $160.

If instead you fall into the moderate income category, 50% of the appliance cost is eligible for the rebate. If the sticker price of the range is $1,000, that means $500 of the cost is eligible. The maximum possible rebate is $840, but you can only take a $500 rebate and will have to pay the remaining $500.

Your project can take as many rebates for which it will qualify – for example, multiple appliances and electrical work – but no matter your income category, the maximum rebate is $14,000.

Insulation and air sealing – which rebate?

One thing you’ll notice is that both HEAR and the HOMES Rebate cover insulation and related work. So which rebate program should you use to insulate your home?

Unfortunately, the language in the Inflation Reduction Act doesn’t seem to address this, so you should look into your state’s program requirements for guidance. These state programs are still in the process of rolling out, but New York is the furthest along and may indicate the direction that other states go.

In New York, if you apply for HEAR to install a heat pump, your building envelope – that is, the insulation rating of your attic and walls – must meet a minimum standard to qualify for the rebate. If it doesn’t, you can use HEAR to upgrade your air sealing and insulation as part of the same heat pump installation project.

This makes a lot of sense because it would be inefficient to install a highly efficient heat pump in a leaky, poorly insulated house.

The disadvantage of using HEAR for insulation is that the limit is only $1,600, and is available only to low- and moderate-income households. This means that if you have a home with poor insulation, the best approach would probably be to use the HOMES Rebate, which also has a higher rebate amount, to make your home more efficient, and then use HEAR in a following year to install a heat pump. According to the IRA, you can’t combine both HEAR and the HOMES Rebate for the same project.

Again, the insulation requirement for heat pumps is currently only stated by New York’s program, so we’ll have to wait and see if other states do the same.

Getting a rebate on an electric panel upgrade

One big benefit of HEAR for anyone who is making the move to electrify their home is that it’ll give you a rebate on upgrading your electric panel and wiring to support new electric appliances. While this may not be needed if you have a newer home with an electric panel with a 200 amp or larger capacity, it’s sometimes necessary if you have an older home.

An electric panel – which is where your circuit breaker or fuses are located – is referred to as “electric load service center” in the IRA language, and is covered with a rebate of up to $4,000. According to HomeAdvisor, the cost to upgrade an electric panel upgrade is $1,300 on average, so this is a big benefit. Wiring is covered too, which may be necessary if you’re installing an electric appliance for the first time or have older wiring in your home, such as knob-and-tube.

It should be noted that it’s often not necessary to upgrade your electric panel, even if it has a lower capacity than 200 amps, if you want to add or upgrade electric appliances. What matters most is not the total capacity of the panel, but the maximum amps in use at any time. If the pattern of your electricity usage stays underneath the capacity of your panel, an upgrade may not be necessary.

That said, with the high value of this rebate, it may be a good idea to upgrade anyway, especially if you think you may make additional electric upgrades to your home in the future, such as adding an EV charger.

One last note: a “qualified electrification project” for this rebate includes an appliance installation, so you can’t use HEAR if the only work being done is an electric panel upgrade.

Combining the IRA tax credit with the Home Energy Rebates

You might be wondering if you can benefit from the Home Energy Rebates, which are taken off the invoice of your project, and also take the 30% Energy Efficient Home Improvement Credit on the remaining amount that you pay. It turns out that you can!

The Internal Revenue Service addressed this in an announcement verbosely titled “Federal Tax Treatment of Amounts Paid toward the Purchase of Energy Efficient Property and Improvements under Department of Energy Home Energy Rebate Programs Pursuant to Sections 50121 and 50122 of the Inflation Reduction Act of 2022”[^5].

In this note, the IRS states that you can use the 30% tax credit on your federal taxes, but the amount must be on the after-rebate amount that you paid for the project:

For example, if a taxpayer purchases an eligible product for $400 and receives a $100 rebate for this purchase through a DOE Home Energy Rebate Program, the taxpayer may claim a 30 percent credit with respect to the remaining $300 of qualifying expenditures, resulting in a credit equal to $90 (not $120).

This is on pages 6 and 7 of the IRS announcement (linked below).

States that currently have implemented Home Energy Rebates programs

Both Home Energy Rebates programs – HEAR and HOMES Rebate – are funded by the federal government and are administered by states, territories, and tribal governments, who must apply to the Department of Energy if they want to make these programs available to residents.

So far, all 50 states except South Dakota has at least begun the process of applying for the program. The District of Columbia, Guam, Puerto Rico, American Samoa, the Virgin Islands, and the Northern Mariana Islands have applied as well.

As mentioned earlier, 11 states currently have rebates available. These programs are newly launched as of this year, so keep an eye out for updates if you live elsewhere and are interested in these rebates.

Quick recap of IRA-related incentives and rebates

The Inflation Reduction Act made a lot of money available to homeowners who want to improve the efficiency of their homes and move away from fossil fuels, but making sense of all these programs can be difficult. To summarize:

• There is a 30% tax credit for home energy efficiency and renewable energy upgrades (such as solar panels).
• The Home Energy Rebates program give homeowners upfront rebates on home efficiency and electric appliance projects. The electric appliance rebate program is the High-efficiency electric home rebate (HEAR), while the home efficiency program is known as the HOMES Rebate.
• Home Energy Rebates is sometimes incorrectly referred to as HEEHRA.

It can be hard to make sense of these programs, but once you do, you’ll find out that there’s a lot of help for homeowners to make their homes more environmentally-friendly and efficient, with lower utility bills on top of it.

While some programs are limited to low- and moderate-income households, the income thresholds might be higher than you think. Some rebates are also available no matter the income level.

If you live in a state where rebates aren’t available yet, you can keep an eye on this page for updates.

References

[^5] Federal Tax Treatment of Amounts Paid toward the Purchase of Energy Efficient Property and Improvements under Department of Energy Home Energy Rebate Programs Pursuant to Sections 50121 and 50122 of the Inflation Reduction Act of 2022 (PDF) https://www.irs.gov/pub/irs-drop/a-24-19.pdf