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Air conditioning deductions

You’re ready to dig right in, surely, and you’ve come to the right place. You’ll learn why these federal tax credits were introduced, what household appliances and eco-friendly improvements they apply to, and what you can save.

Why Did the Inflation Reduction Act Introduce HVAC Tax Credits?

The federal tax credits apply to the following areas.

Upgrading Residential Clean Energy Equipment

Tax incentives for HVAC

You don’t necessarily need a fresh install to reap the benefits of the Inflation Reduction Act. If you upgrade the following equipment, you’re eligible to shave off the expenses associated with your equipment:

  • Solar energy systems
  • Battery storage technology
  • Geothermal heat pumps
  • Small wind turbines
  • Fuel cells 

Installing Energy-Efficiency Home Improvements 

You can also rake in the savings by making smart, green improvements throughout your home. Here are the improvements eligible under the federal tax credit:

  • Doors
  • Furnaces
  • Skylights and windows
  • Electrical panel upgrades
  • Insulation
  • Boilers
  • Central air conditioners
  • Propane, natural gas, and oil water heaters
  • Home energy audits 

Updating Heat Pumps

The IRS counts heat pump technology as its own savings category. If you own a heat pump water heater, biomass boiler or stove, or an air source heat pump, you can also get back more savings when you file your taxes. 

Am I Eligible for HVAC Tax Credits?

Central air tax rebates

Before you begin digging through your receipts and tax forms, know the eligibility requirements for HVAC tax credits under the Inflation Reduction Act. 

  • The Residential Clean Energy Credit requires you to claim the credit for your existing or new main home. Other property owners, tenants, and landlords are ineligible for the credit. 
  • If you live in a second home part-time and improve the home, you are still eligible for the Residential Clean Energy Credit. However, you can’t claim fuel cells, and you can’t rent the home to others. 
  • The Energy Efficiency Home Improvement Credit requires you to apply for credit toward your main home. 
  • You cannot apply this credit to a new home, only an existing property you improve. 
  • You must live in the home full-time to apply for the Energy Efficiency Home Improvement Credit, so you can’t apply as a tenant, other property owner, or landlord. 

How Much Can a Homeowner Save Through Tax Credits?

The Residential Clean Energy Equipment Upgrades program allows you to deduct 30 percent off the cost of expenditures for a home you recently built or a remodeled existing home. However, the rate of savings will decrease the later the expenditures are installed.

For example, the rate of savings is only 26 percent in 2033 and 22 percent if you wait until 2034. You can carry any excess credit to future tax years, but not loan origination fees or interest paid. 

The Energy Efficiency Home Improvements program also allows you to save 30 percent, which is an overall claim of $1,200 on home improvements and property costs. There is no lifetime limit on the credit, so if you continue making changes to the credit from 2022 onward, you can get money off every year until 2032.

However, you can’t use any excess credit in another tax year, so plan strategically about what you want to claim and when. 

If you upgrade your heat pump units, you can save $2,000 overall. 

FAQ     

Energy efficiency tax write-offs

Can You Combine Federal Tax Credits?

You can, and you should if you want to maximize your savings. 

For example, if you upgrade your heat pump water heater to a new model and your doors and windows in the same year, when you file your taxes the next year, you can claim project costs at a rate of 30 percent at a limit of $2,000 since you added a heat pump water heater. 

You can also deduct $250 for each door for a max limit of $500 for the year, or you can deduct $600 off your window upgrades for the tax year. 

If you request an energy audit and then upgrade your heating and cooling systems, you can claim as much as $1,200. 

How Do You Claim an HVAC Inflation Reduction Act Tax Credit?

Claiming your federal tax credits under the Inflation Reduction Act is simple. When the next tax year rolls around, complete Form 5695 and file it with your taxes. The form requires you to log all solar electric, geothermal heat pump, solar water heating, and small wind energy property costs, as well as your battery storage, fuel cell property, window costs, door costs, and insulation.