Inflation Reduction Act, 1 Year In: 6 Ways It Can Save You Money on Energy Costs

One year ago, on Aug. 16, 2022, US President Joe Biden signed the Inflation Reduction Act. The landmark legislation included provisions to reduce the deficit, lower prescription drug prices and modernize the IRS, but the biggest chunk of its $433 billion budget targets climate change and energy independence. 

Over 10 years, nearly $370 billion is being invested in transitioning the US to renewables, electric cars and energy-efficient homes, as well as ramping up domestic manufacturing with green technology and providing resiliency for communities most impacted by rising sea levels, powerful storms and other climate-related disasters.

"It's the biggest investment in climate conservation and environmental justice ever anywhere in the history of the world," Biden said in a briefing last week. "These are investments in our planet, our people, in America itself."

The law's climate policies will lead to a 40% reduction in carbon emissions by 2030, according to the White House, while still saving Americans thousands of dollars a year on energy bills every year.

In honor of the IRA's first anniversary, we take a look at the tax credits and incentives it introduced to meet those goals.

For more on home energy and utilities, find out how to save $100 a year by unplugging a few appliances and learn everything you need to know about buying solar panels.

1. A 30% tax credit for buying solar panels

The residential clean energy credit, which provides homeowners with a tax break when they purchase and install rooftop solar panels, was slated to expire in 2025.

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The Inflation Reduction Act didn't just renew the credit, it boosted it from 26% to 30% of the system's cost through 2032. (It'll drop to 26% in 2033 and 22% in 2034 and then expire in 2035 unless it's renewed again.) 

The credit can be applied toward a wide array of expenses when it comes to a solar array, including the panels themselves, related hardware such as batteries, electrical work, permits and labor.

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So if your all-in costs for rooftop solar come to $25,000, you'll essentially only have to pay $17,500.

The IRS website has more information on the residential clean energy credit.

2. An extra 10% credit for buying American-made solar panels

Part of the Biden administration's climate agenda is to encourage domestic manufacturing of green tech. Today, more than three-quarters of solar panels are made in China, so the IRA included a provision that tacks on a "domestic content incentive" -- an additional 10% tax break for buying hardware made in the US. 

The requirement will "spark a flood of investment in American-made clean energy equipment and components," Abigail Ross Hopper, CEO of the Solar Energy Industries Association, said in a statement. 

According to guidance from the Treasury Department, rooftop setups are eligible if 100% of their steel and iron is manufactured in the US and 40% of electrical gear, inverters and other components are mined, produced or manufactured stateside.

Companies that currently sell US-made solar panels include Silfab Solar, Qcells, Mission Solar and First Solar.

Click here (PDF) for more information on the domestic content incentive.

3. Up to $14,000 for energy-efficient upgrades to your home

The Inflation Reduction Act also earmarked $8.8 billion for the Home Energy Rebate Programs, a pair of tax breaks for energy-efficient home improvements that will be administered by individual states in the coming years.

Through the Home Efficiency Rebates Program, you can receive up to $8,000 back on new windows and doors, smart thermostats and other upgrades, depending on how much they trim your energy consumption.

The Home Electrification and Appliance Rebates Program, meanwhile, gives low- and moderate-income households up to $14,000 back for switching to energy-efficient appliances and improving their home's insulation and wiring. Specified dollar amounts are attached to each upgrade, including $1,750 for an electric water heater and $8,000 for an electric heat pump for space heating and cooling.

Low earners -- those making 80% or less of a state's median income level --  can get 100% of a project's costs covered. Middle earners -- those making 80% to 150% of the median -- can claim up to 50%.

According to the Department of Energy, the two programs will save consumers up to $1 billion in energy costs each year and support the creation of an additional 50,000 jobs in construction, manufacturing and other sectors. 

"Americans living in energy efficient, electrified homes bring us one step closer to a clean, safer future," Secretary of Energy Jennifer M. Granholm said in a statement.  

Applications are being accepted now, and the Energy Department said some rebates may go into effect as soon as early 2024.

But not everyone will have access to them: Florida "respectfully" withdrew its application for the Home Energy Rebate Programs in June, Bloomberg reported, after Gov. Ron DeSantis vetoed a $5 million grant that would've been used to establish programs to distribute the rebates.

It's not clear yet if other states intend to follow suit. The deadline to submit an application is Jan. 31, 2025, and any declined funds will be redistributed to participating states, according to CNBC.

The Energy Department has FAQs on the Home Energy Rebate Programs.

4. Up to $7,500 for a new electric vehicle

Instituted by the Obama administration back in 2009, the electric vehicle tax credit got a major facelift thanks to the IRA, which added income limits and price caps.

It also broke the $7,500 tax credit in half, with $3,750 available for EVs with batteries that come from the US or an approved trade partner, and another $3,750 if the vehicle's component minerals meet the same criteria.

It did ease a few restrictions, including a manufacturing cap that previously disqualified automakers that made more than 200,000 EVs.

And starting next year, the credit can be applied as "cash on the hood," meaning it can go toward your payment at the point of purchase.

The Department of Energy's Fueleconomy.gov site has the latest information on which make and model EVs qualify for the tax credit.

5. Up to $4,000 for a used EV

Previously, pre-owned electric vehicles weren't covered under the EV tax credit. But a provision in the IRA meant that, as of Jan. 1, 2023, a second-hand plug-in or fuel-cell EV can qualify for a rebate of up to 30% of its purchase price, maxing out at $4,000.

Environmentalists say the used clean vehicle credit will be a major driver in moving Americans off of gas-powered cars.

"Because once you get behind the wheel of an EV, you're 95% likely to never go back," Joe Britton, board chair of the Zero Emission Transportation Association, told The Washington Post. "Exposing Americans of all income levels to electrification will have a really positive impact on our ability to transition." 

The car must be at least two years old and have a sticker price of $25,000 or less, and the credit can only be claimed once in the vehicle's lifetime. 

You can find more details about the Used Clean Vehicle Credit on the IRS website.

6. Up to $1,000 for an EV charger

The Inflation Reduction Act also extended the tax break for residential EV charging systems through 2032 -- and made it retroactive to Jan. 1, 2022. It's worth $1,000, or 30% of the cost of buying or installing the system, whichever is less.

The credit now also applies to bidirectional charging equipment, which can turn your EV into a battery on wheels to power your home in case of an outage.