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HVAC inflation policy

The 2024 tax year is already upon us, so between now and April, you have to file with your favorite tax expert. While most people’s taxes are quite cut and dried, if you’ve recently added an HVAC system to your home or business, you might wonder how it will change the tax landscape for you for this year.

For example, can you claim a deduction on the HVAC system for your 2023 taxes? If so, how much?

Learn whether a new HVAC system is tax deductible so you can get excited for your refund. 

Planning Your Taxes – Is a New HVAC System Tax Deductible 2023?

In 2022, President Biden signed into law the Inflation Reduction Act, a federal law that takes a multipronged approach to reducing inflation. Part of the act involves clean energy promotion, and another area entails pouring more into making domestic energy. 

The deductions and tax credits you’re eligible for by improving the energy efficiency of your workspace and home are worth thousands of dollars a year. If you’ve made any eco-friendly changes to your home recently, there’s no reason not to pursue these deductions. 

Here are the types of home improvements the tax credits cover:

  • Upgrading residential clean energy equipment, such as solar energy systems, geothermal heat pumps, battery storage technology, small wind turbines, and fuel cells. 
  • Energy-efficient home changes and improvements, like energy audits, insulation, upgrading the electric panel, and buying lower-energy boilers, doors, windows, furnaces, skylights, central air conditioners, and water heaters (including propane, oil, and natural gas heaters).
  • Upgrading heat pump technology, including heat pump water heaters, biomass boilers or stoves, and air source heat pumps. 

Determining What You Can Deduct on Your Taxes 

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If you’ve added one or more of these energy-efficient HVAC systems to your property, you’re probably already mentally calculating what your deductions look like, right? Let’s dive deeper into the savings. 

Making a clean energy equipment upgrade means a deduction of 30 percent of what you paid. The expenditures can be for a newly built or existing home but only apply to residential properties, not commercial. 

If you added an energy-efficient water heater, furnace, boiler, or central air conditioner to your home in 2023, you can claim a deduction in 2024 valued at $1,200. That sum is a total of all the HVAC, so whether you purchase one new system or several, you’re still capped at the same value.

The $1,200 is the equivalent of a 30-percent discount.

Did you decide to make 2023 the year your heat pump got an upgrade? Whether you added an air-source heat pump, heat pump water heater, or a biomass boiler or stove, you can deduct 30 percent off your costs with federal tax credits for a total amount of $2,000.

Even better, if you have other eligible tax credits in 2023, you can combine them with this one at a limit of $1,200. 

What Other Energy Efficient Changes Are Tax Deductible?

The federal tax credits don’t stop there! Here are some other deductions you can explore before you file your taxes this year. 

Commercial Building Tax Credits

The Energy Efficient Commercial Building Property or EECBP applies to upgraded energy-efficient building envelopes, hot water systems, HVAC systems, and interior lighting. 

Since 2023, you can deduct $1 a square foot if your building has achieved energy savings of 50 percent or more. You can also add $0.02 a square foot toward every energy savings percentage point that exceeds 25 percent. 

If your building has an energy savings of 25 percent, you can calculate your savings at $0.50 a square foot. 

This is a notable change from 2022, when the deduction maxed out at $1.80 a square foot for a building with energy savings of at least 50 percent. Properties may also be eligible for partial deductions. 

Home Builder Tax Credits

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Before you build your home, look into the §45L New Energy Efficient Home Credit, which received an extension through the Inflation Reduction Act. The home credit will now apply until 2032.

If you built or acquired your apartment or home on January 1st, 2023 or later and it’s Energy Star-certified, you can claim a deduction on your taxes. 

The credits are worth up to $500 for multifamily homes that pass the program requirements for Energy Star Multifamily New Construction. If you meet the prevailing wage requirements, the credit is worth $2,500.

Credits for manufactured homes go up to $2,500, but the property must be certified under the Energy Star Manufactured Home program, meeting the necessary requirements. 

If you live in a single-family home that passes the Energy Star Single-Family New Home requirements, you can deduct up to $2,500. 

The minimum eligibility requirements in 2024 are as follows:

  • Washington and Oregon: MFNC National v1.2 or MFNC Washington and Oregon v1.2 for multifamily homes, MH v2 for manufactured homes, and SFNH National v3.2 or SFNH Washington and Oregon v3.2 for single-family homes. 
  • Hawaii: MFNC National v1.1 for multifamily homes, MH v2 for manufactured homes, and SFNH Pacific v3 for single-family homes.
  • Florida: MFNC National v1.1 for multifamily homes, MH v2 for manufactured homes, and SFNH National v3.1 or SFNH Florida v.3.1 for single-family homes.
  • California: MFNC California v1.3 for multifamily homes, MH v2 for manufactured homes, and SFNH California v3.3 for single-family homes.
  • All other states: MFNC National v1.1 for multifamily homes, MH v2 for manufactured homes, and SFNH National v3.1 for single-family homes. 

How to Claim Your HVAC Tax Credits 

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Are you ready to file your taxes so you can get your federal tax credits for your new HVAC system? You must complete Form 5695, Residential Energy Credits. 

The form asks you to list your qualified geothermal heat pump property costs, small wind energy property costs, solar water heating property costs, and solar electric property costs. Include any qualified battery storage technology with a capacity of three kilowatt hours or higher and qualified fuel cell property connected to your main home. 

You also have to add your residential clean energy credit, air sealing material or insulation (including its cost), skylights and windows, and residential energy property costs.