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HVAC tax credits

You can hardly shop for an air conditioner or heater without hearing about SEER ratings. While measuring the SEER of your HVAC unit is useful from a performance and energy-savings standpoint, it’s also beneficial for tax purposes.

Depending on the SEER rating of your HVAC unit and whether it meets Energy Star qualifications, you might be eligible for tax credits on your heater or air conditioning system. Learn more about why SEER matters and what it can mean for you regarding tax breaks.

What Is a SEER Rating?

SEER is short for seasonal energy efficiency ratio. It determines how well an HVAC unit like an air conditioner performs during the hottest months of the year. SEER is calculated by dividing the summertime cooling output by the HVAC’s energy output.

While you probably couldn’t imagine a time without SEER ratings, they only entered the HVAC industry around the 1980s. As the decades have passed and global energy efficiency has become a greater concern and heating and cooling technologies have improved, what constitutes a good SEER rating has changed.

Before 1980, a SEER of 6 was considered high. By 1985, a 7 was a good SEER rating, and 8 was fine through 1991. Between the 1990s and 2005, SEER ratings began to climb, with a 10 to 12 regarded as a high rating.

Between 2006 and 2014, the number increased further to at least 13. Today, SEERs of 20 are efficient, but some cooling units exceed even that threshold.

What SEER Rating Do You Need to Qualify for Tax Credits?

Heating tax deductions

While the SEER rating you’re interested in for your home’s heating and cooling purposes is one thing, United States tax law doesn’t have the same SEER requirements.

If you want to save on your 2024 taxes for an air conditioner purchased in 2023, the SEER rating you need varies depending on the type of air conditioning system. Electric and gas packaged air conditioning systems must have a SEER rating of 15.2 or higher, while split systems need a SEER of 16 or over.

Eligibility Rules

To apply for the tax break, you must meet the following criteria:

  • Your air conditioning unit must be Energy Star-certified.
  • You must have bought and gotten the air conditioner installed between January 1st and December 31st, 2023.
  • The air conditioner must have been installed on your existing property. New homes with a high-SEER air conditioner don’t apply.
  • Your home must be located in the US.
  • If you use your home for business, the amount of usage must not exceed 20 percent. If it does, you can’t qualify for the tax incentive. However, you can receive a credit that’s dependent on the amount of expenses dedicated to nonbusiness usage.
  • The materials for the air conditioner must be new and pass basic standards for energy efficiency.

How Much Can You Claim on Your Taxes?

You can claim up to 30 percent on your 2024 taxes if you got a new high-SEER air conditioner in 2023. The limit is $3,200, and you can claim the improvement tax credit anytime between 2022 and 2032.

Here’s another interesting facet about the tax credit. If you continue making improvements to your home, you can claim the max $3,200 (or the value equivalent of the changes you make) every year. For example, strengthening your building envelope through installing Energy Star air sealing materials, exterior doors, insulation, skylights, or exterior windows is one way to earn a tax credit after getting a new AC.

You can also opt for a home energy audit or upgrade equipment, including a furnace, hot water heater, boiler, stove, or heat pump.

How Do You Apply for a Tax Credit for Your HVAC System?

Air conditioning taxes

Are you ready to claim your tax credit for a new HVAC air conditioner? You need to fill out Form 5685, Residential Energy Credits Part II. The form asks for all your property costs associated with energy-efficient sources.

When you file your tax return for 2024, include the completed Form 5685. After the IRS processes your form, you will soon receive your tax rebate.

Keep in mind that you must claim the rebate for the year when you get your air conditioner installed. If you buy the air conditioner in 2021 but don’t get in installed until 2023, you’d file your taxes for the high-SEER AC in 2024.

Other Benefits of a High SEER Rating

As if a tax incentive wasn’t motivating enough, here are some other advantages of upgrading your air conditioner to a high-SEER model.

  • Greater energy efficiency: Everyone wants to do what they can for our ailing environment. An air conditioner with a SEER of 20+ operates more efficiently, producing energy savings you can take to the bank.
  • Better comfort: A high SEER rating means your air conditioner is running at peak efficiency to keep you comfortable and cool even during the hottest days of summer. A window air conditioner isn’t comparable, and it uses far more energy trying to be.
  • Reduced energy spending: Since your air conditioner is the most efficient on the market (at the time of sale), it will manage its energy more expediently to save you money on your monthly energy bills.
  • Improved air quality: Take a deep breath, then take another one. The air you breathe in with a high-SEER air conditioner is cleaner thanks to the higher-efficiency filters. With fewer germs and contaminants in the air, you’ll feel healthier.
  • Quieter operation: The chug of an air conditioner as it kicks on can be loud and disruptive, especially at night when you’re trying to sleep. A greater SEER enables the AC to run quieter.
  • Higher curb appeal: Many factors can drive up your home’s curb appeal, including the types of heating and cooling systems it has. The greater the SEER number of your HVAC system, the more covetable to the average consumer.
  • Longer life: Since high-SEER air conditioners use energy better, run more quietly, and keep your home comfortable, they run optimally for longer. You could get many years out of your AC. By the time you’re ready to replace it, there will be newer models with higher SEERs.