Understanding Financial Incentives

Rebates Tax Credits Inflation Reduction Act

The Inflation Reduction Act and other financial incentives

Rebates

Rebates are discounts of the purchase price. They can be implemented in different ways:

For example, your Rural Electric Coop might give you $1,800 after you install a heat pump and fill out a form.
Your utility may give you an effective rebate by offering you discounts when you purchase the heat pump from a selected list of contractors.
There are two Inflation Reduction Act (IRA) rebate programs for low-income households only. To see if you qualify, go to the NM Energy, Conservation and Management’s website. You may also sign up for their newsletter on their webpage to keep up program launches and updates.
- One program (Home Electrification and Appliance Rebates or HEAR) offers rebates for specific products at point of sale or installations from a list of qualified contractors. In the first phase of the program, you can apply for a coupon that gives you a discount of up to $1,600 for insulation at Lowes, Home Depot and eventually other retailers. The Department of Energy has information on DIY insulations. Household max for all products listed in these tables is $14,000.
- The second IRA rebate program (Home Energy Rebates-HER) offers rebates for decreasing the total energy usage of a building after efficiency and appliance upgrades.
New Mexico residents whose income falls below 200% of Federal poverty level may qualify for free energy efficiency upgrades and utility payment assisstance through these programs.

Tax Credits

Federal and State tax credits. You apply for a tax credit when you file your taxes to reduce the amount you owe. There are two kinds of tax credits.

Non-refundable tax credits can only be applied up to the amount of taxes you owe. For example, the IRA tax credit for heat pumps is 30% of the cost up to $2,000. So if you spend $8,000 on a heat pump, you could file for a $2,000 tax credit (30% of $8,000 is $2,400, but only $2,000 maximum is allowed). If you owe $2,000 or more in taxes you will be able to subtract $2,000 from your tax bill. If you owe $800 then you will only be able to subtract $800. If you owe no taxes, you will not be able to use the tax credit. The IRA tax credits are non-refundable. In 2020, on average taxpayers paid $4,567 in taxes for adjusted gross incomes between $50,000 and $75,000, and $7,363 for incomes between $75,000 and $100,000.
Refundable tax credits do return the full amount of the credit to you even if you do not owe any taxes. The NM Sustainable Building Tax Credit passed in 2021 is refundable for qualifying low-income residents (income less than 200% of Federal Poverty Level (2024 levels)). You must obtain a “2021 Sustainable Building Tax Credit” certificate from the Energy, Minerals and Natural Resources Department. For heat pumps, for example, it is $2,000 for very low-income residents. For everyone else the state credit is up to $1,000 for heat pump installations and is non-refundable, but any unrefunded excess can be carried over to 7 subsequent tax years.

Other facts to know about tax credits:

Federal Tax Credits.

Tax credit numbers come from their location in the U.S. or Internal Revenue Code. For example, 25C.

Use IRS Form 5695 to file for Federal tax credits. The credit is taken on the cost of the equipment (and often installation) minus any rebates (excluding any credits or rebates from the State). Federal Inflation Reduction Act credits are shown in the table.

Read the fine print. Some IRA tax credits have to be used together, e.g., 25C electric panel tax credit has to be used in conjunction with another 25 C upgrade (heat pump, heat pump water heater) or 25 D (solar tax credit). Total 25C tax credits across panel upgrades and all weatherization projects are capped at $1,200 per year. Heat pumps and heat pump water heaters are subject to a separate 25C cap of $2,000 per year. In the case where both 25C and 25D are applicable for a panel upgrade (i.e., if you’re upgrading your panel in conjunction with both a heat pump and rooftop solar), you cannot combine the two credits (Rewiring America).

There are caps and restrictions on the IRA tax credits. For example:

- Energy Efficiency (25C) tax credit has no lifetime dollar limit, but each year until 2033, you may only get a yearly maximum tax credit of up to:
  - $2,000 each year (for 30% of the cost of a qualified heat pump or heat pump water heater); and
  - $1,200 total each year for home envelope improvements [e.g., doors ($250 per door and $500 total), windows and skylights ($600), insulation and qualified home energy audits ($150)].
- Residential Clean Energy (25D) tax credit for solar, wind and geothermal heat pumps, solar water heater, and battery storage. There are no annual or lifetime maximums, however the credit percentage is scheduled to decrease:
  - 2022 to 2032: 30%;
  - 2033: 26%, and
  - 2034: 22%,

State Tax Credits. For Solar Tax Credits, apply as soon as your project is complete to receive a certificate that you later file with your taxes because funds are capped every year. If you applied for a certificate in 2020-2023 but were denied because the program ran out of money, you can reapply now!

Electric Vehicle tax credits. See the tables below for requirements.

Federal tax credits can now be transferred to participating dealers for an immediate point of sale discount for the maximum allowed tax credit – even if you do not pay federal taxes. If you don’t get the discount when you purchase the EV, you may claim the tax credit with your taxes. But then the credit is capped by the amount of your tax liability. if you owe no taxes you will not get the credit. If you only owe $1,000 – that is the amount of credit you will get.

The state also has a tax credit, but it can not yet be transferred to the dealer at time of sale. Legislation is expected to remedy this next year.

See our EV and EV charger page for more information about EV eligibility, and information on generous incentives for EV chargers. Plug-In America is also a great source of information.

The Inflation Reduction Act

The Inflation Reduction Act contains incentives for all most everyone to electrify: homeowners, renters, car buyers, contractors, non-profits, tribes, pueblos, and government entities. These slides from Rewiring America explain the scope of the act. For an easier way to see how the IRA will fund consumer electrification projects, check out Rewiring America’s Calculator and Guide.

Here is additional guidance from the Internal Revenue Service.