Inflation Reduction Act Tax Credits and Rebates

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The Inflation Reduction Act could cut the United States’ annual greenhouse gas emissions by as much as 41% by 2030, bringing the nation’s overall target of a 50%-52% emissions reduction within arm’s reach. Delivering on this promise, however, will require an economywide investment in clean technology not only by federal, state and local governments, but by businesses and individual Americans as well.

To encourage widespread development and uptake of these technologies, the Inflation Reduction Act includes numerous tax credits and other financial incentives for both individuals and businesses. These include investment and production tax credits to catalyze the domestic renewable energy industry; rebates for green-home upgrades like heat pumps and energy-efficient retrofits; tax credits for buying qualifying electric vehicles; and more. The ultimate climate impact of the Inflation Reduction Act hinges on the extent to which U.S. citizens and the private sector take advantage such programs.

Here are some key financial incentives from the Inflation Reduction Act which are already available for use or will be available soon:

Consumer Incentives

The following incentives can help American families reduce their carbon footprint through lowering the price of purchasing an electric vehicle or making green home upgrades.

Electric vehicle tax credits

• Credits for New Electric Vehicles Purchased in 2023 and After: A credit of up to $7,500 for consumers to purchase a new plug-in electric vehicle (EV) or fuel cell electric vehicle (FCV). To be eligible, vehicles must meet guidelines regarding their components and assembly and be within purchase price limits, while buyers must be within income limits. See current EV tax credit guidelines here.
• Used Clean Vehicle Credit: A credit of up to $4,000 for the purchase of a qualifying used EV or FCV. To be eligible, vehicles must meet guidelines regarding sale price, model year, vehicle weight and battery capacity, while buyers must be within income limits. See used clean vehicle credit guidelines here.

Energy efficiency tax credits

• Energy Efficient Home Improvement Credit: A credit of up to $3,200 for homeowners to improve energy efficiency through installing efficient appliances, such as central air conditioners, water heaters, hot water boilers, heat pumps, biomass stoves and boilers and more. Guidelines and a list of eligible home improvements for the energy efficiency tax credit can be found here.
• Residential Clean Energy Property Credit: A 30% credit to defray the cost of installing at-home renewable energy technology. The credit can be claimed by both homeowners and renters for qualified upgrades such as solar panels, solar water heaters, fuel cells, small wind turbines, geothermal heat pumps and battery storage technologies. Guidelines and eligible expenses for the residential clean energy tax credit can be found here.

Home energy rebates

• The HOMES (Homeowner Managing Energy Savings) Rebate Program: Will offer rebate funds for households making upgrades to improve home energy efficiency. Eligible upgrades include heat pumps, electric stoves and ovens, electric wiring, insulation and more. Information on eligible expenses and rebate amounts can be found here.

Business Incentives

The following incentives can support American businesses looking to invest in clean energy development and deployment or reduce their carbon footprint.

Clean vehicle tax credits

• Commercial Clean Vehicle Credit: Businesses and tax-exempt organizations can access a credit of up to $40,000 (depending on gross vehicle weight ratings) for the purchase of a qualified commercial clean vehicle, including electric school buses. To be deemed a “clean vehicle” it must be a plug-in electric vehicle or a fuel cell motor vehicle. See commercial clean vehicle credit guidelines here.

Clean energy tax credits

• Clean Electricity Tax Credits: These credits provide up to a 30% investment tax credit (ITC) or a $26/MWh production tax credit (PTC) for solar, wind, geothermal and certain other new clean electricity generation facilities meeting prevailing wage and apprenticeship requirements. A production tax credit of up to $15/MWh is available to existing nuclear generation facilities, depending on the market price they receive for the electricity they sell. Additional information about these tax credits will be available here. An addition credit of up to 20% is available for a limited amount of solar and wind capacity built in environmental justice communities.
• Clean Hydrogen Production Tax Credit: This credit provides up to $3 per kg of hydrogen from facilities meeting prevailing wage and apprenticeship requirements, depending on the lifecycle greenhouse gas emissions from producing it. The credit starts at $0.60 per kg of hydrogen with lifecycle emissions of less than 4 kg CO2-equivalent per kg of hydrogen (kgCO2e/kgH2). Hydrogen with lifecycle emissions less than 0.45 kgCO2e/kgH2 is eligible for the full credit. IRS guidance on determining the lifecycle emissions from hydrogen production is forthcoming and could have a significant impact on how effective this credit is in reducing emissions.
• Advanced Energy Project Credit: This credit allocates $10 billion for investments in qualifying advanced energy projects. The goal of this credit is to expand U.S. manufacturing capacity, reduce domestic industrial emissions, and to secure domestic critical mineral supply chains needed for the clean energy transition. Initial guidance for the advanced energy project credit can be found here.
• Sustainable Aviation Fuel Credit: Qualified business entities can access a credit of $1.25 per gallon of Sustainable Aviation Fuel in a mixture. To qualify for the credit, Sustainable Aviation Fuel must have a minimum reduction of 50% in lifecycle greenhouse gas emissions. Guidelines and instructions to claim the sustainable aviation fuel credit can be found here.

Carbon sequestration tax credits

• Credit for Carbon Oxide Sequestration: This is an incentive for capturing and sequestering carbon dioxide. The maximum credit is $85 per metric ton for point-source carbon capture and storage and $180 per metric ton for using direct air capture (DAC). Instructions for claiming the carbon sequestration credit can be found here.

Biofuel tax credits

The Inflation Reduction Act extended the existing Biofuel Tax Credits below, all of which incentivize the production and use of biofuels:

• Biodiesel and renewable diesel credit.
• Biodiesel and renewable diesel mixture credit.
• Alternative fuel credit.
• Alternative fuel mixture credit.
• Second generation biofuel producer credit.