*Update: 2011 HVAC Energy Tax Credits can be viewed here
With passage of the American Recovery and Reinvestment Act of 2009, consumers can upgrade to more energy-efficient HVAC equipment and save on their energy bills now, and also save on their taxes next year. The new law makes important changes to existing tax incentives for homeowners who make qualified improvements of higher efficiency HVAC equipment.
(For more information on how higher efficiency equipment can save you more money, please see our previous post here.)
Houston Metro Residents should contact us about applying this tax credit to new HVAC equipment. Outside Houston contact your local HVAC contractors.
Residential Tax Credit Details
For qualified improvements, homeowners may be able to claim tax credits equal to 30% of the installed costs (up to $1,500).
- Furnace to qualify 95% AFUE
- Boiler to qualify 90% AFUE
- A/C to qualify 16 SEER + 13 EER
- Heat Pump same as A/C plus HSPF 9
- Water Heater energy factor .8 (tankless)
Please ask your comfort adviser for details on qualifying equipment.
- The new tax credits are retroactive to January 1, 2009, and expire on December 31, 2010. The $1,500 limit is for all improvements made during the two year term, not $1500 each year.
- Per-Appliance Caps Removed – Homeowners may use the entire $1,500 tax credit limit on a single qualifying improvement. The previous per-appliance caps that limited the homeowner to just $150 for a high efficiency furnace or $300 for a high efficiency central air conditioner or heat pump have been removed.
- Lifetime Limit Removed – Homeowners that previously claimed tax credits in 2006 or 2007 are eligible for the full $1,500 limit.
- Expanded Geothermal Tax Credits – Homeowners who install geothermal heat pump systems may be able to claim up to 30% of the installed costs in tax credits in the year the system is placed into service. The $2,000 tax credit limit has been removed. The geothermal tax credit has a longer term, from January 1, 2009 and expires December 31, 2016.
- Consumers should be aware that the $1,500 limit applies to many types of energy efficient home improvements, including windows and doors, roofing shingles, and insulation. You can use the $1500 on just HVAC improvements or on a combination of above home improvements.
Frequently Asked Questions About the New Tax Credits
Can a homeowner claim $1500 in tax credits for improvements made in 2009 and again for improvements made in 2010?
No. Taxpayers may only be eligible for a total of $1500 in tax credits for improvements made in the combined two year period of 2009 and 2010.
Can a homeowner use the entire $1500 limit as a credit toward the installation of one appliance?
Yes. A homeowner may use the entire $1500 in tax credits for installing a single appliance, such as a qualified furnace, air conditioner, heat pump, or hot water heater.
What happens if the 30% of the installed costs is less than $1500?
The homeowner can “bank” the the remaining available tax credit for other qualified improvements. Any single installation that costs more than $5000 will instantly reach the $1500 limit.
Does the tax credit apply to the cost of the equipment or equipment plus labor?
The tax credit applies to the installed costs of the qualified equipment, which includes labor.
How will a taxpayer claim the credit and receive their money?
In the past, the IRS has directed taxpayers to use Form 5695, Residential Energy Efficient Property Credit. Taxpayers are not required to file anything more than the form, but are instructed to keep records of their installation.
What’s the difference between a tax credit and a tax deduction?
As a tax credit applies against the taxpayers’ liability. A tax deduction applies against a taxpayer’s income, lowering the adjusted gross income and possibly moving the taxpayer to a lower tax bracket. Tax credits have a greater benefit to a taxpayer.
With a tax credit, if the taxpayer owes $2000, in taxes, their liability is reduced to $500. If they owe nothing, they can expect a $1500 refund.
What if the homeowners already claimed $500 in tax credits in 2006 or 2007?
The “lifetime caps” that used to be in place have been removed. Any previous claims do not count against the current $1500 tax credit limit.
Can a homeowner claim the credit for improvements to a second home?
No. The tax credit is only available for improvement to the taxpayer’s primary residence.
Can a small business that operates out of a townhouse and installs residential equipment in a commercial setting claim the credit?
No. The tax credit may only be claimed by taxpayers on their personal income taxes for improvements to their primary residence.
What other types of energy efficiency improvements qualify for the tax credits?
Homeowners may be able to qualify for the tax credits if they make qualified improvements to: windows and doors including skylights, storm windows and storm doors; roofing including metal and asphalt roofs; and insulation. All of these improvements qualify, but homeowner may only claim $1500 in total for any improvements.
Will every homeowner definitely qualify for the tax credit?
No. Each taxpayer’s situation is different. Please consult with a tax professional if you have questions regarding your tax situation in regards to these new credits.
It’s hard to find good news for your wallet these days, but these new tax credit changes can help you keep your cool in terms of both comfort and savings!