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 vendors through your contractor.
There are two Inflation Reduction Act (IRA) rebate programs (see below). Both offer discounts depending on your income level.*
One program (HEERA) offers rebates for specific installations or upgrades. For example, low-income households will receive a 100% discount and moderate-income households will get 50% off a heat pump, up to $8,000.
The second IRA rebate program (HOMES) offers rebates for decreasing the total energy usage of a building after efficiency upgrades.
Low to Moderate (LMI) households are defined as: Low income households have income less than 80% of the Area Median Income (AMI). Moderate households make between 80% and 150% of AMI. These limits depend on household size. Here is a 2023 table for Albuquerque – for example, 2 person household low income maximum is $51,150, and the moderate income range is $51,150-$96,000.
To see if you might qualify, check out Rewiring America’s Calculator.
New Mexico applied for the two federal rebate program funds in December 2023. However, they still must be approved, and then must implement rules. It is possible that the programs will be implemented similar to another state program called CEED. If so then they will call for proposals from tribes, local governments and the Mortgage Finance Authority. These in turn will work with community groups and contractors to upgrade residents’ homes. It is not clear when the program will start in New Mexico, and we do not yet know which New Mexicans will qualify.
There are two Federal IRA rebate programs planned: (Rewiring America slides)
- HEERA is for appliances and equipment (capped at $14,000 per household), and
  - HOMES is a whole home performance-based program awarding rebates for energy use reductions after retrofits. Applicants can demonstrate savings by comparing energy consumption before and after the retrofits, either through use of building energy models that estimate the energy performance of the whole house, or by measured performance. The energy savings requirements and the rebate calculation differ for the two methods. See Congressional Research Service IN FOCUS for more information.

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 are available as of 2023. 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 (2023 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.

Electric Vehicle tax credits are income-limited and complicated. By 2024, the tax credit will be transferred to the dealer and will operate as an effective rebate to the seller. For incentive information about Electric Vehicles we recommend following Plug-In America. Also see our page.

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.