Consumer Tax Incentives
Home Heating & Cooling Equipment
What are the incentives for home heating & cooling equipment?
Purchasers of highly efficient heating, cooling, and water heating equipment can take tax credits of 30% of installed cost for purchasing qualifying equipment, as detailed below. These credits are available for systems placed in service from January 1, 2009, through December 31, 2010. There is a $1,500 cap on the credit per home, including the amount received for insulation, windows, air and duct sealing.
What types of equipment qualify?
- High-efficiency gas, oil, and propane furnaces and boilers
- High-efficiency central air conditioning units, including air-source heat pumps
- NEW – Ground-source or geothermal heat pumps
- NEW – Biomass Stoves
- High-efficiency fans for heating and cooling systems
- High-efficiency water heaters, including heat pump water heaters
What are the efficiency requirements to qualify for the credits?
Manufacturers and retailers should be able to help you tell whether a specific product qualifies.
The qualification specifications are:
- Furnaces and Boilers: Natural gas & propane furnaces must meet an Annual Fuel Use Efficiency (AFUE) 95 or higher, oil furnaces and gas, oil and propane boilers must meet an AFUE of 90 or better.
- Central Air Conditioning Units: Central air conditioning units and air-source heat pumps must meet the highest tier standards set by the Consortium for Energy Efficiency (CEE) as of Janurary 1, 2009, which in most cases requires a Seasonal Energy Efficiency Ratio (SEER) of 16. SEER measures performance throughout the cooling season.
- Biomass Stoves: Stoves must have a thermal efficiency of 75% as measured using a lower heating value, and be used to heat a dwelling unit or heat water for use in the same. The law defines biomass fuel as anything from agricultural crops, trees, wood wastes & residues to pellets, plants, grasses and fibers.
- While the new tax credit takes effect immediately, the Internal Revenue Service has not issued the guidelines for determining which stoves meet the efficiency requirements to qualify for the credit or how a manufacturer will qualify their products. These guidelines are expected by the later part of May 2009, however the credit applies to all qualifying stoves sold in 2009. Once the IRS guidelines are issued, wood and pellet stove manufacturers will test their stoves and will notify their retailers regarding which models qualify.
- Fans for heating and cooling systems: fan uses no more than 2% of total heating system energy use, as defined by DOE test procedure. For more information, see the Air-Conditioning, Heating and Refrigeration Institute web site . It is still unclear how the 2009 Stimulus legislation has impacted this incentive – it seems reasonable to assume that the cost basis will be the reasonable cost of the fan, not the entire furnace. IRS has yet to issue specific guidance on this issue.
- Gas or propane water heaters—Energy Factor of at least 0.82, or a thermal efficiency of at least 90%.
- Heat pump water heaters—Energy Factor of at least 2.0
Where must the equipment be used?
Under guidance issued by the IRS, equipment is eligible if installed in a home occupied by a taxpayer as their principal residence at the time the equipment is installed. This implies that equipment in new homes is generally not eligible since in new homes equipment is generally installed prior to occupancy. However, efficient equipment in new homes can help that home qualify for the new home tax credit.
What do I need to do to qualify for the incentives?
Under the IRS rules, manufacturers need to certify that specific measures are eligible. Homeowners should obtain a copy of this certification when buying these products from the manufacturer, contractor or retailer. Certifications need not be submitted to the IRS, but should be kept on file in case the IRS has questions. Homeowners should also make notes on when each eligible measure is installed- only measures “placed in service” in 2009 or 2010 are eligible.
Where can I find out more about qualifying products?
- Furnaces and Boilers: Information on qualifying equipment can be found at:
- Central Air Conditioning Units and Heat Pumps: Information on qualifying equipment can be found at the Consortium for Energy Efficiency web site. ACEEE and DOE also have general information.
Fans for Heating and Cooling Systems:
- Water Heaters: Information on which equipment meets the required Energy Factor levels can be found in a directory published by AHRI. More general information can be found on the ACEEE and DOE websites:
How to file a tax credit
Certain products that promote energy efficiency are eligible for tax credits from the federal government. You can claim the tax credit when filing your income tax return. A tax credit is a dollar-for-dollar amount that you receive from the government. This is different from a tax deduction, which reduces your tax liability by the amount to be deducted. The February 2009 stimulus bill provides increased tax credits for energy-efficient products, including furnaces, windows, heaters, solar panels and wind energy systems.
Difficulty: Moderately Easy
Shop around and confirm eligibility. If you have not purchased your furnace yet, shop around to make sure that what you plan on buying is not just Energy-Star labeled, but also meets the specific energy-efficiency criteria to qualify for the tax credit. See the first link in Resources for these government-required specifications. If you have already purchased your furnace and it does not meet the requirements, you will not qualify for a tax credit.
Keep good records. You will need your purchase receipt, as well as a manufacturer’s certification statement, to claim a tax credit when you file your income tax return. Make sure to get the certification statement when you buy your furnace.
Familiarize yourself with the rules for claiming a tax credit for a furnace purchase. Based on the new stimulus bill that was signed into law by President Obama in February 2009, you can claim a tax credit of 30 percent of the purchase price of your eligible energy-efficient product up to a maximum of $1,500 until 2010 (2016 for some products; some products have no upper limit). If your furnace was installed in 2008, you are not eligible for a tax credit; however, furnaces installed in 2009 are once again eligible if they meet the efficiency criteria. Furnaces installed in 2006 and 2007 are eligible, and if you did not claim a tax credit, you can file an amendment to your tax return for the applicable year. See the second link in Resources for all energy-efficiency tax credits available.
When filing your taxes, you will need IRS form 5695. You can easily find this form online. Make sure you use the most up-to-date version. See the link in Resources for the current version. Fill it out properly by following the instructions.
Use tax-filing software at tax time. The best way to claim your tax credit is to use tax-filing software. You just need to answer the appropriate questions, and the software will automatically prepare the appropriate IRS forms. Also, bear in mind that tax-filing software is updated periodically to be in line with up-to-date government regulations.