What's in the Inflation Reduction Act? Rebates, credits and price caps

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The Inflation Reduction Act offers a slew of rebates and tax incentives. Here are the big ones.

Only a few weeks ago, the Democrats’ signature domestic policy agenda was dead in the water. Now, a revived bill focused on climate change and healthcare has passed the Senate and the House, and some people will start to feel its effects next year.

The Inflation Reduction Act (IRA), passed by Congress on Friday, creates thousands of dollars in incentives for some homeowners to install energy-efficient electric stoves and better insulation. It will keep the price of installing solar power on a house artificially low, by increasing tax credits that were otherwise set to expire at the end of the year.

And it may help some people purchase electric cars — though limitations apply.

The new bill, which President Joe Biden is expected to sign soon, has a big-picture target of curbing global warming, but its effects will be felt in households across the country. As Washington tries to shift America toward a more energy-efficient future, the government is offering a range of tax incentives to people who are willing to make climate-friendly purchases.

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The Inflation Reduction Act will also lower healthcare costs for some people. Low- and middle-income Americans who use insurance marketplaces created by the Affordable Care Act will see a subsidy on their insurance, which was otherwise set to expire, extended. And seniors on Medicaid will benefit from a new $2,000 cap on prescription drug prices.

Grid has broken down how the legislation will affect day-to-day life — and how consumers can take advantage of the new law as they spend their paychecks:

Tax credits for drivers who buy electric cars

The bill includes a credit to help consumers purchase an electric vehicle — but it has some major caveats.

Any individual who makes less than $150,000 — or $300,000 for married couples — can take advantage of a $7,500 credit to buy a new EV or up to $4,000 for a used version. But the bill specifies that the EV batteries must be sourced in certain amounts from North America and the United States’ trading partners. These requirements are being phased in over time, but even right off the bat, the Alliance for Automotive Innovation estimates that of the 72 currently available EVs, only 20 to 25 of them would be eligible. Over the next few years as the sourcing requirements ramp up, the Alliance says that none of the models would be eligible.

These specifications might push the industry to change its practices and phase down its reliance on Chinese materials and labor faster, but for the moment it does seem to leave many consumers out of luck.

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An even bigger tax credit for installing solar panels

While the bill sends billions of dollars toward the manufacturing and large-scale installation of renewable energy, it does have some relevant consumer provisions as well. Specifically, it revives a dying tax credit for home solar power installation.

Under current law, homeowners can get a 26 percent tax credit for a solar power system installed between 2020 and 2022. That credit was due to drop to 22 percent for systems installed next year, and it would have expired entirely by 2024. The IRA kicks it back up to 30 percent for systems installed this year all the way through 2032, when it again drops back to 26 percent.

Rooftop solar installations tend to go for somewhere between $15,000 and $25,000, so shaving anywhere from $4,500 to $7,500 off your taxed income isn’t something to sneeze at.

Rebates for energy-efficient appliances

There is a lot in the IRA to help people improve their homes’ energy efficiency. Precise rebate amounts will vary based on an individual’s income compared with the median area income, but all told there are thousands of potential dollars for consumers through the part of the bill known as the Homes Rebate program.

Among the eligible items are heat pumps for water heaters (up to $1,750) and for space heating and cooling (up to $8,000), electric stoves or ovens or an electric heat-pump clothes dryer (up to $840), an upgrade to circuit breaker boxes (up to $4,000), improvements to insulation and ventilation (up to $1,600) and improvements to wiring (up to $2,500).

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In total, consumers can take as many of these rebates as they would like, up to a total of $14,000.

And more rebates, for homeowners who reduce whole-house energy use

Aside from the appliance-specific sorts of rebates, the bill offers a more generalized approach as well. A retrofit that reduces a home’s energy usage by 35 percent, through insulation or other improvements, is eligible for up to $8,000 in rebates or 80 percent of the project cost, whichever is less. For lesser improvements in energy use, that number goes down — for projects that manage between 20 and 35 percent, for example, the benefit caps out at $4,000.

Extensions to insurance subsidies on the marketplace

In 2021, Congress passed new subsidies aimed at low- and middle-income Americans who buy insurance on marketplaces created by the Affordable Care Act — but those subsidies were ready to expire at the end of this year. The new law will extend those subsidies by three years.

This will help keep more people insured and keep premiums lower for people who purchase insurance on the marketplace, as opposed to employer-sponsored healthcare plans. After the new subsidies were added by Congress in 2021, a record number of people signed up for health insurance through the marketplace, and premiums fell by 19 percent between 2021 and 2022, according to the Department of Health and Human Services. An estimated 3.1 million people would lose their healthcare plans if Congress had let the subsidies expire, according to an Urban Institute analysis.

New caps on prescription drug prices for seniors

Seniors and others who use Medicare will see the out-of-pocket cost of prescription drugs capped at $2,000 per year under the new bill. The bill also caps the price of insulin — which has shot up in recent years — at $35 per month for Medicare recipients.


These provisions are part of a broader effort to save the federal government money by allowing Medicare to negotiate the prices of certain prescription drugs. Most of these changes will take place over time, beginning in 2025 and 2026, though the cap on the price of insulin will go into effect next year.

Thanks to Lillian Barkley for copy editing this article.

  • Dave Levitan
    Dave Levitan

    Climate Reporter

    Dave Levitan is a climate reporter for Grid where he focuses on interconnected stories about climate and science, and politics shaping action around both.

  • Maggie Severns
    Maggie Severns

    Domestic Policy Reporter

    Maggie Severns is a policy reporter for Grid covering complex policy stories and major headlines.