The federal government provides incentives for installing energy-efficient HVAC systems. Its Department of Energy offers a package of energy-efficient tax credits for not only HVAC systems but also any other energy-savings enhancements, like storm windows and weather-stripping. The breakdown is as follows:
You may claim a lifetime credit maximum of 10% on your expenses to purchase and install an HVAC system, or any other energy-savings enhancements. The amount you can claim is capped at $500.00.
Filing for the Lifetime Credit Maximum
You can download IRS Form 5659 to file with your income tax return. Anything to do with the IRS; the devil is in the details, so don’t overlook any instructions, or you may not be considered eligible, according to their nit-picking bureaucratic processes
The time period to install an energy-tax-credit-eligible HVAC system expires on January 1, 2017. This means you must file by December 31, 2106.
Keep the manufacturers’ warranties, certifications, and purchase receipts. You may need them to file the IRS Form 5659.
There are exceptions to the $500 credit limit and they are listed below:
- For a state-of-the-art main air-circulating fan the credit is capped at $50.00
- For an eligible oil furnace or hot water boiler, propane, and natural gas units $150.00 is the maximum you can claim.
In the category of energy-efficient eligible products items would include central air conditioners and geothermal pumps, as well as the items listed in 2. The cap is $300.00. But please check on all this information, which is the most accurate available to date. Because it’s hard to keep up with the IRS guidelines as they are subject to change without warning for the consumer.
Energy Star on its website lists guidelines on the HVAC systems the federal government covers. Not every Energy Star-certified product is eligible for the energy-efficient tax credit. Energy Star is a reliable resource you can turn to for the correct information, in lieu of some contractors, who remain ignorant of the finer points of the energy-efficient tax credit program. Don’t depend on them. They will say anything to make a sale.
Energy Efficiency and Your Pocketbook
With the incentive to upgrade to green-energy HVAC products it is possible to lower your energy bills as much as 20% yearly. The average annual savings amounts to about $200.00.
Your initial outlay will cost you but keep in mind the energy-savings down the road that will bring a return on investment. For a high-efficiency heating system expect to pay about $3,500 inclusive of installation, whereas a conventional heating system will set you back around $2,400.
Exclusions on Heating Units
Purchasing an Energy Star-certified product does not guarantee you can claim the energy-efficient tax credit in all cases. There are standards to be met to get the energy-efficient tax credit. The annual fuel utilization efficiency (AFUE) rating must exceed a conventional heating system’s AFUE. For Energy Star-certified oil furnaces they must rate at 85% energy-efficiency, while some gas furnaces need to burn fuel at 90% efficiency.
The Department of Energy asks for even higher AFUE ratings to claim the energy-efficiency tax credit: for natural or propane gas furnaces 95% and oil furnaces 95%. Boilers must also consume energy at an AFUE rating of 95%.
Central Air Conditioner SEER Ratings
Cooling system ratings known as seasonal energy-efficiency ratio (SEER) and energy-efficient ratio (EER) are Energy Star standards. The ratings vary according to the type of system: split system ratings are SEER 16-plus and EER 13-plus. For package systems, SEER 14-plus and EER 12-plus. These efficiency standards can change without notice, so double-check them on the Energy Star website.
Return on Investment
It usually takes about 10 years in energy-efficient savings to compensate for the expense of investing in new heating and cooling systems. But this time period can alter significantly if there are changes in fuel prices. A value-added benefit, although not evident in your initial investment in an HVAC product, is the reduction of your carbon footprint on the environment, as well as a more comfortable indoor environment for you and your family.
Another benefit to consider is when you sell your home. It’s not that the few thousand dollars you’ve spent to buy a heating system will translate to an increase in your home’s sale price. Potential savings will come in the form of a trade-off with some buyers. This means buyers may not ask that you repair your HVAC system, or bargain for a credit as long as your HVAC system is up to snuff.
Other Energy-Efficient Tax Credits
There are two categories under which you may qualify for a tax credit when you make home improvements:
- Non-Business Energy Property Credit
- Residential Energy-Efficient Property Credit
Non-Business Energy Property Credit for Eligible Property
Homeowners can deduct 10% on the cost of the following products, exclusive of labor / installation expenses:
- Any energy-efficient insulation material
- Outside windows, transoms, doors, and skylights. (Follow this link to find out more information): https://www.energystar.gov/sites/defult/files/asset/document/Window_Doors_and_Sky
- Storm windows and doors (conditions apply)
- Energy-efficient roofing materials
- Central cooling units (limit: $300)
- Heating units (boilers) for hot water, natural gas, and propane
- Heating units (furnaces) (limit: $300)
- State-of-the-art fans (for propane, oil, and natural gas heating units)
- Biomass fuel stoves
Non-Business Energy Property Credit caps the lifetime credit at $500
Here are some more energy-efficient items you can claim for a tax credit:
- Storm windows (limit: $200)
- State-of-the-art air-circulating fan (limit: $50)
- Eligible fuels: oil furnace (propane and natural gas); hot water boiler (limit: $150)
Residential Energy-Efficient Property Credit for Eligible Property
Green-energy products are incentivized at 30% of the purchase price. This tax credit has no cap in many cases, the exception being fuel cell property, capped at $500 depending on kilowatt usage.