What to know about rebates, tax credits for more efficient heating systems

CHARLOTTE — As the temperatures cool, homes across the Carolinas will be cranking up the heat. Winter is the most demanding time of the year for our energy grid and the most expensive season for most household energy bills.

To reduce demand on the grid and cut down on carbon emissions, the Inflation Reduction Act offers several rebates and tax credits focused on helping Americans make their homes more energy efficient, including upgrades to home heating technology.

What are the credits?

For 2023, households can claim a tax credit for 30% of the costs of buying and installing a heat pump, up to $2,000, or up to $600 for a high-efficiency furnace at least 16 SEER, or seasonal energy efficiency ratio.

In addition to that, the HOMES rebate program will provide rebates of up to $8,000 for winterization and electrification improvements. However, that program is administered by the states and has been slow to roll out; there’s not a lot of information right now about how homeowners can take advantage of the rebates.

What we do know is that households with income that is 80% below the area median income (AMI) can qualify for the maximum rebate and households at 81-150% AMI can receive up to 50% of the cost of upgrades up to $4,000.

Both North Carolina and South Carolina expect to roll out these rebates next year.

The rebates and tax credits are available until 2032.

Why upgrade your heating system?

The average furnace has a lifespan of around 15 to 30 years and a heat pump typically lasts around 15 years, so if your system is nearing the end of its lifespan, this program offers an incentive to proactively upgrade.

Additionally, while higher efficiency systems typically have a higher upfront cost, they tend to save money, in the long run, on power bills. Specifically, switching from a gas furnace to an electric heat pump can save homeowners hundreds of dollars a year.

What is the difference between a furnace and a heat pump?

A furnace uses internal combustion, usually with propane or natural gas to heat the air in your home. They work very well at warming the air quickly and providing a nice blast of hot air out of the vent, and they average about 80% heating efficiency. That means 20% of the heat energy the furnace produces goes to waste. Currently, high-efficiency systems market themselves at 97%, which is a massive boost in efficiency -- that still means for every dollar you spend on gas, you’re losing three cents in heat energy.

A heat pump works in tandem with an outdoor air conditioning unit and relies on refrigerants absorbing or releasing heat to cycle air between your house and the outdoor environment. In warm weather, it takes the heat out of your house and pumps it outside, and in cool weather, it works in reverse to warm your house. The heat output can be three to five times greater than the energy used to run it, so every dollar you spend on electricity, you get $3-$5 of heat in return.

Unfortunately, this system can only work as long as there’s any hot air to pump in. At extreme low temperatures, (depending on the unit that can be between 10 and 0 degrees) the heat pump will have to supplement its warming with an internal electric furnace and at that point its efficiency drops off. Also, for those used to gas furnaces, you may not notice your heat pump is working because it doesn’t produce that blast of hot air you’d expect.

How much do they cost?

A high-efficiency furnace will cost around $2,000 to $6,000 plus installation costs while a heat pump costs an average of $4,500 to $8,000.

Switching from gas to a fully electric system often requires costly installation fees because it requires a 240V wire to replace the 120V wire powering the furnace.

To avoid electrical changes, HVAC professionals recommend a dual-fuel heat pump system that includes a gas furnace as a source of backup heat. That way, when the temperatures drop low enough that the heat pump would need to supplement with its own internal heat system, it’s using lower-cost gas power versus an internal electric furnace. These systems often have a higher upfront cost but tend to work better in cooler climates.

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