The ever-changing seasons in Minnesota require several preparations and foresight. When we say foresight, we mean building a home that can withstand the test of time and weather. With the winter season approaching, we want to highlight the importance of attic insulation and its role in home efficiency and preventing ice dams. Additionally, this guide will explain how homeowners can acquire financial benefits from federal tax rebates.
Based on current statistics, many homes lack proper insulation. Having a trusted service provider that offers this can create many benefits for Minnesota homeowners. Energystar.gov recommends between 16 and 18 inches of insulation for a homeowner’s attic space to retain energy in the form of heat while minimizing the energy output. If a home has less than 16 inches of insulation, there is a high potential for ice dams to build up on the exterior.
Moreover, it is highly recommended that attic insulation installation experts install fiberglass, cellulose, or borate-infused cellulose insulation.
Getting to Know the Federal Tax Rebate on Attic Insulation
According to Bonfe, The IRA tax credit is a financial incentive created by the Inflation Reduction Act (IRA) to encourage investment in clean energy and reduce carbon emissions. The IRA offers homeowners significant tax credits and rebates for upgrading their home’s essential systems. The Inflation Reduction Act’s tax credits give you a reason to upgrade and get rewarded for installing energy-efficient home systems like HVAC, Plumbing, and Electrical. Save money, boost comfort, and reduce your carbon footprint.
What are the IRA Tax Credits for Home Improvements?
Heating & Cooling
Homeowners can qualify for up to $600 in IRA tax credits for furnaces, boilers, and central air conditioners. Depending on the model and equipment selected, additional rebates may also be available, making energy-efficient upgrades even more cost-effective.
Heat Pumps
Heat pumps are advanced, energy-efficient systems that provide heating and cooling by transferring heat instead of generating it. Since they don’t rely on fossil fuels, they offer a reduced carbon footprint. Homeowners can claim up to $2,000 in IRA tax credits for installing heat pumps.
Water Heaters
Bonfe provides a range of water heater options, including tankless and heat pump models. Traditional and tankless water heaters qualify for up to $600 in IRA tax credits, while heat pump water heaters are eligible for up to $2,000.
Electric Panels
Upgrading your electric panel can qualify you for up to $600 in tax credits. Additional tax incentives may apply if you install or purchase an electric vehicle (EV) charging station.
EV Charger Installation
Installing an EV charger at home qualifies for up to $1,000 in tax credits. Further tax incentives are available for switching to an electric vehicle.
Annual Limits for IRA Tax Credits
The annual limit for IRA tax credits is $3,200 annually through 2033. This includes:
- A $2,000 cap for heat pumps and heat pump water heaters.
- A combined $1,200 cap for furnaces, boilers, central air conditioners, tankless or traditional water heaters, and electric panel upgrades.
These categories can be combined, allowing you to maximize your credits up to the annual limit of $3,200!
3 Reasons Why Your Home Needs New Insulation
1. Adding insulation to your home can have massive energy savings by raising your R-value:
Compromised insulation thickness decreases energy retention and increases heating and cooling costs. If you live in your home for more than 1 year, you can offset the cost of adding insulation to your attic through the energy savings it will provide. It is common for homes to experience up to 30% savings or more significant reduction in their energy costs after bringing insulation up to par.
2. Lowered R-value creates the potential for ice dams and water damage:
Lower heat retention leads to snow melting above the affected area, melting then freezing lower, preventing melted water from draining off the roof. This refreezing is observed as ice dams, a buildup of ice whose weight can damage your roof, gutters, and soffits. Water at and above these areas can leak into a home and cause damage to walls, ceilings, insulation, and other places. This damage can open the door for Carpenter Ants to create a satellite nesting location, a phenomenon frequently noted by our wildlife technicians.
3. TAP Insulation (borate-infused insulation) prevents bug infestations:
Borate-infused insulation will prevent insects such as lady Asian beetles, box elders, wasps, hornets, stinging insects, stink bugs, and others from intruding on your home through the attic space. This green insecticide is an additional level of protection for your home and all of its occupants.
How Much Can You Save with the Tax Credit?
Based on an Energy Star Article, Through 2032, federal income tax credits are available to homeowners, which allows up to $3,200 annually to lower the cost of energy-efficient home upgrades by up to 30 percent.
In addition to the energy efficiency credits, homeowners can also take advantage of the modified and extended Residential Clean Energy credit, which provides a 30 percent income tax credit for clean energy equipment, such as rooftop solar, wind energy, geothermal heat pumps and battery storage through 2032, stepping down to 22 percent for 2033 and 2034.
How to Claim Federal Tax Credits
Claiming your federal tex credits are managed by the U.S. Internal Revenue Service (IRS). This can be claimed with your federal income taxes for the year in which the upgrades are made.
- Claim the credits using the IRS Form 5695.
- Instructions for Form 5695
- Instructions for Form 5695 (Print Version – PDF)
How to Claim the Energy Efficiency Home Improvement Credit
According to Energy Star’s Guide, Homeowners can claim the Energy Efficient Home Improvement Credit for upgrades made to their primary residence, where they live most of the year.
The home must be in the U.S. and have an existing structure that you improve or expand. However, this credit does not apply to newly constructed homes, and landlords or property owners who do not reside in the home are not eligible to claim the credit.
Moreover, there are no lifetime limits on these credits, meaning homeowners can claim the maximum annual credit each year that qualifying improvements are made through 2032. However, the credits are nonrefundable, so the amount you can claim is limited to the taxes you owe for the year, and any unused portion cannot be carried over to future tax years.
How to Claim the Residential Clean Energy Credit
If you invest in renewable energy systems for your home—such as solar panels, wind turbines, geothermal systems, fuel cells, or battery storage technology—you may qualify for the Residential Clean Energy Tax Credit, covering 30% of the cost for eligible installations made between 2022 and 2032.
The credit rate decreases to 26% for systems installed in 2033 and 22% for those installed in 2034.
This credit is available for improvements to your primary residence, whether a new or existing home, as long as it is in the U.S. However, landlords or property owners who do not live in the home are not eligible.
You may also claim this credit for certain upgrades to a second home you use part-time and do not rent out. However, fuel cell systems do not qualify for second homes.
One advantage of this credit is that you can carry forward any unused portion to offset taxes in future years. However, costs such as interest or loan origination fees cannot be included in the credit calculation.
Maximizing Your Federal Tax Savings
Every homeowner should be wary that the annual total limits are structured, and it is advisable to spread your home energy efficiency improvements over a few years. This means homeowners should plan upgrades to maximize the annual credits that can be claimed. Here are a few examples shared by Energy Star:
Example 1: Get an energy audit and improve your home’s envelope
A home energy audit can help you identify the most significant and cost-effective energy efficiency improvements your home can benefit from if you are considering upgrading your heating and cooling system.
In that case, it is wise to optimize your attic insulation first to reduce the air leaks contributing to energy waste and making your home less comfortable. Individually, you could claim 30% of the cost of the home energy audit up to $150, and you could claim 30% of the product cost of the insulation, up to $1,200.
Doing both of these upgrades in one year, you can claim a maximum of $1,200.
Example 2: Upgrade your heating and cooling systems
After the upgrades in Example 1, you decide to replace your heating and cooling system for maximum efficiency. You purchase an air-source heat pump that qualifies for the energy-efficient home improvement credit. In the same tax year, you can claim 30% of the cost of that project for up to an additional $2,000.
Combined with Example 1 (for which you can claim $1,200), your total claim amount would now be $3,200, the maximum allowed in one taxable year.
Example 3: Replace old windows and doors and get a new heat pump water heater
You must replace the old windows and two exterior doors and install a new heat pump and water heater in your home. Up to $600 (or 30% of the product cost) for upgrading your windows in one taxable year.
- 30% of the product costs up to $250 per door ($500 maximum in one taxable year).
- 30% of the project costs, up to $2,000 for the heat pump water heater.
Your total claim amount would be $3,100 for one taxable year.
Wrapping It Up
Before the winter season, homeowners should ensure attic insulation is installed or updated to leverage the federal tax rebates. Having the rebates is just the cherry on top, and the main point is you ensure that your home is more comfortable, safe, and energy-efficient. By that, you can say goodbye to sweltering summers and chilly winters.
If you need us, we are experts in insulation installation services. Check the nearest service areas for your convenience.
After our services, you can say “goodbye” to attic pests and home energy inefficiencies!
Contact us today at 763-537-0330.
Licensed in Minnesota, Abra Kadabra’s pest technicians are Journeyman or Master certified and continue to update their knowledge and licensing annually. They aim to help homeowners, landlords, and business owners eliminate pests with as little human exposure to pesticides as possible. Environmental sustainability and the Integrated Pest Management approach to pest control is at the core of everything we do.
