The Inflation Reduction Act, signed into law during the summer of 2022, has a number of provisions that could affect contractors, and now is the time to prepare to take advantage when the plan is fully rolled out in 2023.
“What the law provides could be really, really beneficial” to businesses and contractors, said Chris Hunter, ServiceTitan’s Principle Industry Advisor and Founder of Hunter Super Techs and the Go Time Success Group. “But contractors are going to have to take the initiative to learn about it and understand how these programs will be run.”
The time to start is now.
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It’s impossible to minimize the amount and significance of the money involved to spur installation and upgrades of energy-efficient units for homes and businesses. That means business for trade businesses.
In November, the federal government announced that nearly $9 billion would be distributed to states and tribal territories through the law passed in August. The Department of Energy also announced the money available to each state; Texas leads the way with a whopping $692 million.
“As a contractor, I would be taking steps in advance,” Hunter said. “I’d make sure I visit with my equipment suppliers. They want this to come through just as much as anyone and will be on the front lines of getting the information.
“I'd also anticipate which units will qualify and begin to get the marketing and pricing strategy done for when the programs are released.”
ServiceTitan, the cloud-based software for the trades, can help. Hunter said users can build templates in the software now so the businesses are ready when the specifics of each state’s program are announced.
“That way you will be prepared to hit the ground running as soon as the funds are available,” Hunter said.
Money will provide tax rebates and tax credits for upgrades that will allow communities and consumers to make their homes and businesses more energy efficient. The bill was passed by Congress in August and signed into law by the president on Aug. 16. Each state and native tribal territory will administer the programs that will distribute the money.
A key facet of the bill is an attempt to make the country more “green.” To do that, the law provides tax credits, rebates and/or savings in two main areas:
Homeowners who make energy-efficient improvements (new doors, windows, appliances).
Low-to-moderate income homeowners who make high-efficiency electric improvements.
ServiceTitan contractors will see benefits mainly via the high-efficiency electric home rebates. That program offers significant point-of-sale rebates for low-income households, including:
$8,000 for a heat pump air conditioner/heater
$1,750 for heat pump water heaters
$840 for electric stoves
$4,000 or half of the cost of an upgraded electric panel to run the high-efficiency items
$2,500 for electrical work
$1,600 for insulation
“The rebate program is what really got me jazzed up,” Hunter said. “As far as I know there’s never been a program like this that's paid the electrical contractors up to $4,000 to replace and upgrade the panel, the breaker box, and then potentially another $2,500 in wiring to some of these new high-efficiency appliances.
“For an electrical contractor … wow … this is potentially a really big deal. To the HVAC contractor who has ever thought about doing electrical work, I would be paying attention and maybe adding that division if I didn't already have it, or at least getting a strategic relationship with them.”
Hunter also emphasized the importance of training techs who will be installing the high efficiency units that have specific needs that require precise, careful installation. If issues arise, the system will work harder and use more energy.
“You talk about spin the meter,” Hunter said. “Let's just say a fraction of them, 3, 4, 5%, aren't installed properly so they're using 10 times the electricity. Did we really save anything, or are we just really taxing the grid even more? That's why I think training is going to be very key on these things, not only what to sell and how to match them up, but then how to install them and how to start them up so they're running correctly.”
Low-income households can receive the entire rebate; moderate-income households, half the rebate. A household can receive up to $14,000 in rebates in a year. How are low- or moderate- income households defined? It’s individuals or families who earn less than 80% of the median income in their area, and not more than 150% of the median.
Rebates will apply only to the highest-efficiency units, which can be the most expensive. But Hunter said the size of the rebate can help offset the cost. He anticipates the number of HVAC system installs will increase significantly. He even said the $8,000 rebate could prompt some homeowners to bypass repairing a system in lieu of replacing it.
“It’s a no-brainer,” he said.
The DOE started listening sessions with the states and tribes in November, and will continue holding them through January. DOE then will issue a Request for Information for public input in early 2023, with the anticipation and hopes that money will be available in the spring of ’23, with rebates available to the public later in the year.
“Me personally in Texas, I'm going to be looking to Texas to start providing the specifics of the program,” Hunter said. “I've got to rely on them to release the details, what the program's going to be, how the funding's going to happen, all that type of information.
“My advice right now is to learn as much as you can about the law, but understand there's going to be a lot of conflicting information coming out. Don't take anything to the bank until your state has the specifics and has rolled out the program to begin to offer to customers.”
The law also will provide significant rebates for solar energy. Hunter said contractors should be aware if they want to add solar-panel installation to their capabilities. There also are tax incentives for businesses to buy electric vehicles, which might not be as easy to get done as it may seem.
“In theory, the tax credit's really nice right now for electric vehicles, but good luck finding one right now that you can actually acquire and afford,” Hunter said.
Finally, there are increased tax deductions for businesses that improve their buildings to be more energy efficient. Hunter advises to do detailed calculations to see if the increased tax benefit is worth the expense of improvements.
Total Allocations Amount
|District of Columbia||$59,444,250|
|U.S. Virgin Islands||$51,172,560|