Installing an Energy-Star certified HVAC system in your home can earn you a federal tax credit of up to $2,000. Yes, that’s right! The U.S. Government is offering tax credits to homeowners who have performed energy-efficient upgrades to reduce the country’s carbon footprint. All great news!
If you’ve already installed an energy-efficient HVAC system, you can claim the federal tax credit when filing your tax returns. Qualified homeowners can claim 25c tax credits, which equals 10 percent of the installation costs, but up to a maximum of $1,200 for a new qualifying furnace and air conditioner and $2,000 for a qualifying heat pump system. If considering an upgrade to your home comfort system or are possibly looking at expensive repairs, you should definitely consider installing an energy-efficient HVAC system to take advantage of this federal tax credit. In addition, you’ll save additional money on cooling and heating costs.
What is the HVAC federal tax credit?
A federal tax credit for HVAC systems offers incentives to homeowners investing in energy-efficient home improvements, including cooling and heating equipment. The tax credit is non-refundable, reducing taxes. This motivates people to use clean energy. Any high-efficient HVAC system qualifies for a tax credit. However, federal tax credits only apply for non-business properties that have implemented energy-efficient home upgrades.
How the federal HVAC tax credit works
In August 2022, the U.S. Government signed the Inflation Reduction Act (IRA) to reduce greenhouse gas emissions by 40 percent by 2030. So, it introduced new federal tax credits effective for the next 10 years, starting January 1, 2023 to 2032.
How much do homeowners qualify for in the energy-efficient HVAC tax credit?
The U.S. Government changed the lifetime tax credit cap of $500 to an annual cap of $1,200 to $2,000. However, this depends on the efficiency improvements you’ll make. You can claim tax credits for several projects, mainly when spread out over many years.
Some eligible HVAC equipment for home improvement tax credits include efficient:
- Heat Pumps
- Heat Pump Water Heaters
- Energy-efficient HVAC systems
- HVAC Boilers
- Furnaces
- Central AC systems
Note that the 25c tax credit has an annual cap of $1,200, except for heat pumps. The annual tax credit cap for heat pumps, boilers and heat pump water heaters is $2,000.
How to qualify for the federal tax credit on HVAC systems
Before you claim a federal HVAC tax credit, you must first check your HVAC system’s Seasonal Energy Efficiency Ratio (SEER). If you don’t know anything about your HVAC SEER, you can ask your contractor to give you that information. In addition to asking your HVAC contractor, you can also visit AHRI’s directory to check if your HVAC system qualifies for the federal HVAC tax credit. Every HVAC manufacturer (Lennox, York, Daikin, etc.) provides these system matches to show their exact efficiency, and this is provided to the AHRI (Air Conditioning, Heating, and Refrigeration Institute).
Your air conditioner or heat pump must meet the minimum SEER standards to qualify for the federal tax credit. Notably, the U.S. Government updated new SEER2 standards effective January 1, 2023. The SEER2 standards will improve the efficiency of HVACs. If you installed a new HVAC system after January 1, 2023, you must ensure that it fulfills SEER2 standards for HVAC. Then, it will make it easy to qualify for tax credits for air conditioners. So, ensure you have the paperwork that shows you are eligible. This paperwork is called an AHRI Certificate.
Installing more energy-efficient HVAC systems will not only help you qualify for the federal tax credit HVAC but also reduce your electricity consumption. As a result, you’ll save more money in the long run. So, whether you’ve upgraded your HVAC system, or plan to do it, ensure you take advantage of the HVAC federal tax credit to save money.
