Guide to Federal Tax Incentives for Efficient HVAC

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Your HVAC system is designed to keep you comfortable, but did you know it could also save you money on your taxes?

As an incentive to encourage lower energy usage in homes, the US Federal Government offers a federal HVAC tax credit for anyone who has purchased efficient heating and cooling products since 2012. This program is known as the 25C heating and cooling equipment tax incentive, it’s worth considering if you’ve recently bought an energy-efficient heating and cooling system, water heater equipment, or made certain HVAC improvements to your home.

What is the Incentive?

Anyone who has made energy-related improvements to their home between January 1, 2012, and December 31, 2016, may have been eligible for tax credits. The Inflation Reduction Act (IRA) of 2022 extended federal HVAC tax incentives for energy-efficient home improvements through 2032. This includes HVAC systems, water heaters and other energy-efficient products purchased and installed after January 1, 2023.

Not every product qualifies for the tax credit, so be sure to read packaging closely when making a purchase. You can see which products are eligible for the tax deduction on Energy Star’s guide to tax credits. Notable updates include:

  • Federal tax credits now cover 30% of the cost of eligible energy-efficient improvements up to a maximum of $3,200 annually.
  • Eligible improvement credits include:
    • $300 central air conditioning credit
    • $300 air-source heat pumps
    • Up to $600 ENERGY STAR certified windows and doors credit
    • Up to $1,200 for Insulation and air sealing materials annually
    • Geothermal heat pumps, solar energy systems and other renewable technologies qualify for an additional 30% clean energy credit through 2032

How much can you save?

Homeowners may receive a credit of 10 percent of their qualified energy-efficient improvement costs up to a maximum of $500. The maximum credit amounts for specific products include:

  • $150 for qualified gas, propane or oil furnaces and boilers
  • $300 for qualifying central air conditioners, heat pumps or water heaters
  • $50 for advanced main air circulating fans
    Remember: this credit is cumulative, so think broadly about your purchases. Insulation, doors, windows and certain roofs may also count towards a deduction. The credit allows for retroactive claims up to four years, so don’t forget to include any qualifying purchases made since 2012.

What Other Incentives Are Available?

The federal HVAC tax credit applies to all Americans, but you may qualify for local tax deductions or rebates as well. Many local governments and energy companies have cost-saving programs that you may have never considered.

Some of the other local and state-level incentives include:

  • Rebates from energy companies for upgrading to energy-efficient HVAC systems
  • Local property tax deductions for making energy efficiency improvements
  • Sales tax exemptions for certain energy-efficient products

Check out the Database of State Incentives for Renewables and Efficiency® (DSIRE) to see specific incentives available in your region. You can easily filter by state, sector, program type and more to find deductions that may be available to you.

The Benefits of Energy-Efficient Systems

Tax deductions are just one reason to purchase an energy efficient heating and cooling system. An energy efficient HVAC system won’t just save you money on your utility bill; it will have a longer lifespan than less efficient options. You are much less likely to experience breakdowns, and that means one less headache to deal with when it’s ten degrees below zero.

For your next HVAC purchase, consider the costs over time, rather than the sticker price. If you have questions about tax deductions on HVAC products, don’t hesitate to contact our team.

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