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Inflation Reduction Act Passes in Senate — What Does This Mean for HVACR?

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The Senate on Sunday successfully passed its landmark climate, tax, and health care measure after making last-minute changes to secure Sen. Kyrsten Sinema’s (D-Ariz.) must-have vote. The passing of this bill followed an overnight amendment process that made additional tweaks to the package. Though it’s significantly smaller than the $3.5 trillion plan envisioned by the party roughly a year ago, this legislation may be beneficial for the HVACR, Home Performance, and Energy Efficiency Industries, including many ACCA members.

The landmark Inflation Reduction Act (IRA) was approved with 50 Senate Democrats voting for the bill and all 50 Republicans voting against it, with Vice President Kamala Harris, as president of the Senate, casting the tie-breaking vote of 51/50. The legislation will next head to the House, which is expected to return from a summer recess on Friday. House Speaker Nancy Pelosi said lawmakers will, “move swiftly to send this bill to the President’s desk.”  The bill was passed along party lines using the Senate’s reconciliation process, which allows certain budget-focused legislation to bypass the 60-vote filibuster rule.

Before its final passage, senators spent more than 15 hours debating amendments starting late Saturday night, including measures introduced by Republicans as well as Sen. Bernie Sanders (I-Vt.).The bill faced some last-minute confusion as key moderate Sen. Kyrsten Sinema (D-Ariz.) looked to exempt smaller subsidiaries of large private equity firms from the package’s 15% minimum corporate tax. Democrats accepted her requested changes and made up for the lost revenue by extending a limit on businesses writing off losses.

HVAC Contractors- Did You Know You Are on the Frontlines Fighting Climate Change?

Congress, at least Democrats, believe you are key to making some major efficiency changes and will be key to moving the U.S. away from fossil fuel usage in homes. The IRA bill’s rebates, or tax breaks, for qualifying consumers who add efficient heat pumps, rooftop solar, electric HVAC, and electric water heaters should be a major driver for sales. The rebates will also help drive the SEER 2 transition as well as ease the challenges with the adoption of A2L equipment.

HVACR Bright Spots We should all be Excited and Cautiously Optimistic About Being Included- “It’s All About the Heat Pump, Baby”

ACCA is pleased to report one of the bright spots in the bill  ̶  a whopping $370 Billion for energy and climate programs, which has some major incentives, mostly via tax credits and rebates. These incentives go directly into the pockets of homeowners who opt for energy-efficient choices, replacing fossil-fuel furnaces, boilers, and water heaters with high-efficiency electric options that can be powered by renewable energy. Leveraging survey data that shows 67% of voters support providing tax credits and other incentives to homeowners, landlords, and businesses to purchase appliances that don’t use fossil fuels (such as electric water heaters, heat pumps, and electric induction cooktops), Democrats were able to get unified support for many incentives that should be very appealing to many of your customers.

A few benefits of the bill include:

  • $9 billion in total energy rebates, including the $4.28 billion High-Efficiency Electric Home Rebate Program, which returns a rebate of up to $8,000 to install heat pumps that can both heat and cool homes, and a rebate of up to $1,750 for a heat-pump water heater.
  • For ACCA members that offer electrical service: many homes will need their electrical panels upgraded before getting new appliances, and the program offers up to a $4,000 rebate toward that initial step. Disadvantaged communities are noted as priority areas.
  • There are also funds in the IRA to be claimed for smaller actions: a rebate of up to $1,600 to insulate and seal a house, and a rebate of up to $2,500 for improvements to electrical wiring.
  • Disadvantaged communities are called out as priority areas, and it looks like the intent of many of the incentives will be to flow through and administer at the state level, which will run through Sept. 30, 2031. Disadvantaged homeowners would be able to collect a maximum of $14,000 in total rebates. To qualify, household income cannot exceed 150% of the area’s median income.
  • For homeowners who do not qualify for the rebates, the IRA provides for a tax credit of up to $2,000 to install heat pumps.
    • Installing an induction stove or new windows and doors, for example, qualifies for tax credits up to $1,200 a year.

What About Commercial Contractors

179D Update: as I hit on in my update last week, we had a substitute amendment on prevailing wage and apprenticeship requirements. We continue to work to address these issues in a potential Manager’s Amendment as well as pushing the House on 179D.

What About Solar?

  • The legislation revives a 30% tax credit for installing residential solar panels and extends the program until Dec. 31, 2034.
  • The tax credit would decline to 26% for solar panels put into service after Dec. 31, 2032, and before Jan. 1, 2034.
  • Homeowners who install solar battery systems with at least three kilowatt-hours of capacity would also qualify for the tax credit.

The bill is meant to return more green technology manufacturing back to the U.S. by tagging $60 billion to accelerate domestic production of solar panels, wind turbines, and batteries, as well as support the critical minerals processing that is a must-have for the batteries that power EVs and help households leverage their solar power.

Other Incentives to Keep an Eye on for Business Planning

Electric vehicles also received tax credits of up to $7,500 for the purchase of a new electric vehicle TSLA, 4.72%; F, 3.43%; and Love, $4,000.

Here are a Few Highlights of What Republicans are Saying About the Bill:

  • Will cause tax increases on Americans making less than $400,000 a year.
  • 87,000 new IRS agents to perform audits of Americans making less than $75,000 a year
  • Bill does nothing to reduce inflation.
  • Tax limits the ability of Main Street “pass-through” businesses to claim losses in excess of a specified threshold, only allowing any excess loss to be carried forward in later years.
  • Oil superfund tax would impose $12 billion in new taxes on American energy, increasing prices at the pump and costs for everyday items.
  • Obamacare expansion: includes a three-year expansion of ACA subsidies that were set to expire at the end of the 2022 calendar year.

Something to Keep in Mind With all the Exciting Things, As Well As the Things That Give You Heartburn

Rulemaking: This is where all the sausage making gets turned into something we consume. Congresses and Presidents enact laws, setting forth broad goals with little idea of how to get there. They get publicity in the media and take credit for addressing a problem, and pass tough questions on how to solve the problem to the bureaucracy. This handoff is where the process known as rulemaking starts. Congress does not provide any additional resources for agencies to do rulemaking. This is where the departments and agencies issue statements that implement, interpret, and prescribe policy in an area authorized by legislation passed by Congress, issuing statements to clarify current and future policy in an area authorized by the law. They have to decide on answers to questions: The federal rulemaking process usually takes two to three years for a suggestion to be enacted as a rule and depending on the speed at which agencies proceed with the rulemaking all implementation could be impacted by the outcome of the 2024 Presidential Election.

Barton James

Posted In: Climate Change, Government, Taxes, Top Priorities

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