Heat pumps are an energy upgrade for homeowners that is becoming a climate and financial winner

Are you considering a heat pump for your home? New and extensive government incentives, coupled with soaring energy costs, make it more attractive.

Especially when used in conjunction with clean electricity sources such as rooftop or community solar, a heat pump — a single electrical device that can replace a homeowner’s traditional air conditioner and furnace system — can heat and cool a home with less planetary damage. .

These investments are also becoming more attractive to consumers, given the heavy inflation. According to SaveOnEnergy.com, a whopping 87% of US homeowners surveyed said they experienced higher prices during the summer in at least one category of household services or utilities. There’s another potential bonus: incentives offered through the recently passed Inflation Reduction Act of 2022.

“These incentives not only save you money on your energy bill now and in the long run, but they put our economy on track to reduce the consumption of fossil fuels that contribute to climate change,” said Miranda Leppla, director of the Environmental Law Clinic. at Case Western Reserve University School of Law. “It’s a win-win situation.”

The use of heat pumps will become more common as governments legislate their approval. The state of Washington recently commissioned the construction of new homes and apartments with heat pumps. In July, California Governor Gavin Newsom announced a goal of 3 million climate-ready and climate-friendly homes by 2030 and 7 million by 2035, complemented by 6 million heat pumps by 2030.

Here are four important things to know about upgrading your home to a heat pump system.

Heat pump costs, savings and efficiency considerations

Heat pumps are suitable for all climates and are three to five times more energy efficient than traditional heating systems, according to Rewiring America, a nonprofit organization focused on electrifying homes, businesses and communities.

Instead of generating heat, these devices transfer heat from the cool outside air to the warm indoor space and vice versa in hot weather. Heat pumps rely on electricity rather than natural gas or propane, both of which have higher carbon emissions than renewable electricity such as wind or solar, said Jay S. Golden, director of the Dynamic Sustainability Lab at Syracuse University.

With installation, heat pumps can range from about $8,000 to $35,000, depending on factors such as home size and heat pump type, according to Rewiring America, but estimates that the savings could add up to hundreds of dollars a year for an average household. Plus, it’s a long-term game, since heat pumps most people will consider installing have an average lifespan of 10 to 15 years, according to Rewiring America.

Electricity costs are also generally more stable, shielding consumers from gas price volatility, said Joshua Skov, a corporate and government sustainability strategy consultant who also serves as an industry mentor and instructor at the University of Oregon.

“While there is an upfront cost, millions of homeowners would save money over the life of the unit with a heat pump,” he said. “You save even more if the federal government covers part of the upfront costs.”

Incentives Inflation Reduction Act

The Inflation Reduction Act — a comprehensive effort by the federal government to protect the climate — contains multiple incentives to reduce the cost of energy-saving real estate improvements. These incentives far exceed what’s available to homeowners today, said Jono Anzalone, a lecturer at the University of Southern Maine and executive director of The Climate Initiative, which empowers students to tackle climate change.

For low-income households, the Inflation Reduction Act covers 100% of the cost of a heat pump, up to $8,000. For middle-income households, it will cover 50% of your heat pump costs, up to the same dollar limit. Homeowners can use a calculator — such as the one available from Rewiring America — to determine eligibility.

If you’re considering multiple green home improvements, keep in mind that the law’s general threshold for “qualified electrification projects” is a maximum of $14,000 per household.

Federal tax credits for homeowners

For those who cross the income threshold for a rebate, starting Jan. 1, there’s the option to take advantage of the non-business energy property credit, commonly referred to as 25C, said Peter Downing, a director at Marcum LLP who runs the accounting firm. tax credits and incentives group.

Homeowners can get a 30% tax credit for home energy efficiency projects, such as heat pumps. In any given year, they can get a credit of up to $2,000 toward installing certain equipment, such as a heat pump. This credit expires after 2032, according to the Congressional Research Service.

There may be another tax credit for homeowners who purchase a geothermal heat pump, which is a more expensive, but more sustainable, option on average. Homeowners can get an unlimited 30% tax credit for a geothermal heating installation, according to Rewiring America, which estimates that an average geothermal installation costs about $24,000 and lasts 20 to 50 years. That means the average tax credit for this type of pump will be about $7,200, Rewiring America said.

Work is still being done on the regulations for the Inflation Reduction Act. But it’s possible that eligible consumers will get both a discount and a credit, Downing said. But the math is probably not that simple, based on previous IRS guidelines on energy rebates backed by the federal government. Suppose a consumer is entitled to a 50% discount for a heat pump costing $6,000. For tax credit purposes, the remaining $3,000 could qualify for a 30% tax credit, resulting in a potential credit of $900, he said.

State and local financial support

States, municipalities, and local utilities can provide discounts for certain efficient appliances, including heat pumps. “Get in touch with all of them, because there are so many different levels of programs, you really have to hunt around,” said Jon Huntley, a senior economist at the Penn Wharton Budget Model who co-authored an analysis of the possible impact of the Inflation Reduction Act on the economy.

Also, be sure to check back regularly to see what new state, local and utility-based incentives may be available, as programs are often updated, Golden said. Reputable local contractors should also be aware of discounts available locally, he said.

Many installers have aggressive financing packages to make heat pump installation more feasible, Anzalone said.