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What HVAC Contractors Need to Know About the “Inflation Reduction Act” Heat Pump Rebate

On August 16th the Inflation Reduction Act of 2022 (IRA) was signed into law. This bill is packed with all types of federal legislation. What we will focus on is what specifically affects the HVAC industry. The bill is spending $369 billion in the energy sector and some of that money will make its way to the HVAC industry in the form of rebates for heat pumps. Many of these rebates will come in the form of “Point-of-Sale” rebates which means the customer will get the discount at the time of sale, which we’ll talk about later in this article.

How Much of a Rebate is Available for Heat Pumps?

The maximum rebate available is $8,000, and the benefit decreases from there depending on how the homeowner’s income compares to the median income in their area. Regardless of income, every homeowner is offered some level of incentive.

Maximum rebate available is $8,000

Low Income Homeowners

To receive the maximum rebate the homeowners’ income needs to be 80% under their area’s median income. This category is designed to pay for the total cost of the heat pump up to $8,000. Below is an image of Fannie Mae’s median home income tool. The image is from a random city; an individual would need to look up their own city to know what they qualify for. To be eligible for the maximum benefit you would need to fall into the highlighted income range or below.

To look up an area’s median home income, a household can use this tool provided by Fannie Mae: Fannie Mae Household Income Tool

Medium Income Homeowners

Medium Income earners can save up to 50% of the total cost of their heat pump up with a ceiling of $8,000 dollars. To fall within this category, the household would need to earn between 81-150% of their area’s median income. Below is an image of Fannie Mae’s median home income tool.

Medium Income earners can save up to 50%

It is the same image as above. Using the below example, to be eligible for this rebate, income should fall between the highlighted portion and the upper limit which would be calculated by multiplying 100% area median income by 1.50. In this example it would be $105,700 x 1.50 = $158,550. For this example, the income parameters would be $84,560 – $158,550.

High Income Homeowners

Unlike the low and medium income, high income households are not eligible for a “point of sale” rebate but will be eligible to receive a 30% tax credit when they file their taxes, up to $2,000. This category is comprised of households that earn over 150% of their area’s median income. There is no income cap for this category.

How Does the Rebate Make its Way to the Contractor?

Each state will determine how they will roll out the rebates and how it will make its way to the contractor/homeowner. As mentioned earlier the larger incentives available to medium and low income earners will be given the discount/rebate at the time of sale. There will be no burden on the homeowner to receive the rebate for which they qualify. The high income earners will receive the rebate in the form of a tax credit when they file their taxes.

How to Determine Which Equipment Qualifies?

In order for a heat pump to qualify for these incentive it must meet or exceed the highest efficiency tier (not including the advance tier) established by the Consortium of Energy Efficiency.

Must meet or exceed the highest efficiency tier

This means that it has to exceed Tier 1 Energy Star tier. For additional details you can visit: or ask your local contractors which systems qualify.

When Will This Program Start?

The programs are administered by the state governments. Even though the bill became law in 2022 it will take some time before they are administered by the states. It is expected that the programs will go into effect in 2023. It is also expected that these incentives would only apply to heat pumps installed after January 1, 2023. For additional details found in the Inflation reduction act, you can download the whole act by clicking this link: Inflation Reduction Act of 2022 (IRA)

Are Heat Pumps and Dual Fuel Systems Eligible for Extended Labor Warranty Coverage?

All major brands will generally offer a 10 year parts warranty for heat pumps and dual fuel systems. Manufacturer’s parts warranties cover the cost of parts associated with repairs of a system. The burden of the labor will fall on the homeowner. These systems are eligible for extended labor coverage.

Extended Labor Warranties or ESAs help shoulder the burden of the labor costs

Many contractors have extended labor options that they offer to the homeowner which would cover the labor associated with repairing a system. Extended Labor Warranties or ESAs help shoulder the burden of the labor costs associated with repairs.

For contractors that are currently installing heat pump or dual fuel systems and are looking to add up to 10 years labor coverage, please reach out to us for pricing or details.

For more details on Trinity Warranty for contractors visit ESAs designed for Contractors