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What Is a Federal HVAC Tax Credit?

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You might have bought a new HVAC system and wonder whether you are eligible for a federal tax credit or how to go about making the claim. The non-refundable tax credit for homeowners is an incentive for energy-efficient home installations, such as high-efficiency cooling, heating, and water-heating systems. The credit, now allowable under a section of the Inflation Reduction Act of 2022, covers multiple qualifying HVAC systems through December 2022.

Which HVAC Units Are Eligible for the Tax Credit?

Research your eligibility for the HVAC tax credits while your HVAC system is still functional since the federal tax credits may not be available yearly. You can verify the tax credit eligibility of your HVAC systems by requesting the equipment's Manufacturer Certification Statement for your equipment from your HVAC dealer.

The HVAC contractor will confirm whether your equipment includes certain specifics, such as:

  • Energy Efficiency Ratio (EER) – how efficiently a heat pump or air conditioner works with a 95°F outdoor temperature
  • Annualized Fuel Utilization Efficiency (AFUE) – the percentage rating for furnace heating efficiencies
  • Heating Seasonal Performance Factor (HSPF) – comparison of a heat pump's output to electricity consumption
  • Seasonal Energy Efficiency Ratio (SEER) – the watt-hour measure of the heat removal rate of an AC and heat pump

Most companies include the information in home install contracts or publish manufacturer certification statements on their websites for customers to access easily. HVAC tax credits cover the following equipment:

  • Non-solar water heaters – up to $300 tax credit
  • Central air conditioners – up to $300 tax credit for split and packaged systems
  • Air source heat pumps – 8.5 HSPF, 12.5 EER, and 15 SEER qualify for up to a $300 tax credit.
  • Gas, propane, or oil fans and furnaces – 95% AFUE and above qualify for up to a $150 tax credit.
  • Gas, propane, or oil hot water boilers – 95% AFUE and above qualify for up to a $150 tax credit.
  • Advanced central air circulating fans – For systems that use less than 2% energy, you qualify for a $50 tax credit.

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Steps to Filing for a Federal HVAC Tax Credit

To be eligible for the HVAC tax credits, your system must meet the above requirements or be essentially ENERGY STAR certified. The AHRI or manufacturer certificate is proof of eligibility, besides the system being installed at your primary residence or existing home. Only replacements and fixes in a current home are permissible for the credit. Rentals and new construction don't count.

First, preserve a copy of the manufacturer's certification statement to demonstrate the system's efficiency ratings to collect your tax credits. Without one, you won't be eligible for the credits. You must submit IRS Form 5695 and your tax return to apply for the tax credit. To do this, you will need to download and complete the necessary sections of form 5695. You have likely reached the cap if you previously claimed the non-business energy property tax credit. You can speak to a tax preparation expert if you think you might have exceeded the credit limit.

If you use specific tax software to help you with your tax return, make sure to respond to the questions about the non-business energy property tax credit so that Form 5695 will be completed. File the form with your income tax return to receive a federal tax credit for energy-efficient HVAC systems. 

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