If you’ve heard of the tax credits for some home upgrades but feel lost in a sea of technical terms and complex information, you’re not alone. With so many tax credits and new legislations each year, many homeowners feel overwhelmed and aren’t sure what savings they are entitled to.
At Anderson Air, we understand, and we want to make getting the best deals on your HVAC system as simple as possible. So, here’s our easy-to-follow guide to the Inflation Reduction Act, HVAC tax credits, and how you can save money on your utility costs.
What is the Inflation Reduction Act?
The Inflation Reduction Act (IRA) was signed into law on August 16th, 2022, and it contains over $500 billion in new government spending and tax breaks for businesses and individuals.
The IRA contains provisions for reducing health care costs, funding the Internal Revenue Service, and reducing carbon emissions. It is projected to reduce budget deficits by $237 billion over the next decade. Many homeowners can take advantage of the Inflation Reduction Act for HVAC upgrades in their homes.
Over $400 billion of the spending and tax breaks are earmarked for clean energy initiatives and programs, including the Home Energy Tax Credits, Residential Energy Clean Property (RECP), and Energy Efficient Home Improvement (EEHI) Credits programs.
What are Home Energy Tax Credits?
According to the IRS, the Home Energy Tax Credits program is the umbrella plan that covers the Residential Energy Clean Property Credit and the Energy Efficient Home Improvement Credit.
For each year you qualify, between January 1st, 2023, and December 31st, 2033, you can claim either the EEHI Credit or the RECP Credit. You are not, however, able to claim both.
That said, you can claim Energy Efficient Home Improvement Credits in one year and the Residential Energy Clean Property Credits in another – as long as you make improvements to your home that qualify within the year for which you are claiming.
What’s the Energy Efficient Home Improvement Credit?
If you make certain energy efficiency improvements to your home, you can claim a tax credit to offset the cost. With the Inflation Reduction Act, HVAC upgrades are now more affordable and accessible than ever. Here’s a breakdown of the claimable credits, as outlined on the IRS website:
Home energy audits
You can claim up to 30% of the cost of a home energy audit, up to a maximum claim of $150.
Building envelope improvements
- Exterior doors – You can claim up to 30% of the cost, up to a maximum of $250 for each door.
- Exterior skylights and windows – 30% of the total cost of windows and/or skylights.
Materials and systems for insulation and air sealing – Up to 30% of the total cost.
Residential energy equipment
- Furnaces, boilers, and water heaters that run on propane, natural gas, and oil
- Central air conditioning units
- Repairs and replacements of branch circuits and panelboards
Each of these qualifies for 30% of the cost, including the additional labor costs for installation.
Heat pumps and Biomass stoves
- Biomass stoves and boilers
- Natural gas or electric-powered heat pumps and heat pump water heaters
Each qualifies for 30% of the total cost (including purchase, installation, and labor fees)
What are the Energy-Efficient Home Improvement Credit limits?
You can claim the Energy Efficient Home Improvement Credit for any year in which you make a qualifying improvement or upgrade to your home.
Every year you can claim a maximum credit of:
- Up to $1,200 (maximum) for any combination of energy audits, building envelope improvements, and residential energy equipment.
- Up to $2,000 (maximum) for any combination of pumps and stoves.
Who qualifies for the Energy Efficient Home Improvement Credit?
To qualify for these credits, you must be:
- A US citizen
- A homeowner
- A taxpayer
- Your property must be located in the United States
In addition, energy audits or home improvements must be made to your primary residence. You cannot claim the credits for a second home, holiday home, or residential property that you rent out.
If you run your own business from your home, you can still claim the federal HVAC tax credit, but there are some limits.
- If less than 20% of your home is used for your business, you can claim the total amount of any Energy Efficient Home Improvement Credit you qualify for.
- If 21% or more of your home is used for your business, you have to calculate how much of your home is home use, and you can claim the same percentage of the credit.
For example, if 30% of your residence is used for business, that leaves 70% that is “home” use. In this case, you can claim 70% of any credits that you qualify for.
What is the Residential Clean Energy Credit?
The Residential Clean Energy Credit is for homeowners who make renewable energy upgrades, such as solar or geothermal technology, to their primary residence.
Qualifying improvements include:
- Geothermal heat pumps
- Solar-powered water heaters
- Solar electric panels
- Fuel cells
- Wind turbines
- Battery storage technology
You can claim 30% of qualifying expenses, including the cost of the equipment, installation, site preparation, assembly, and the installation of any wiring to connect the equipment to your home.
Who qualifies for the Residential Clean Energy Credit?
It’s important to note that not every home and property owner will qualify for the Inflation Reduction Act HVAC credits. To qualify for the Residential Clean Energy credits, you must be:
- A US citizen
- A taxpayer
- A home or property owner
- The property must be located in the United States.
Helpful note: Unlike the Energy Efficient Home Improvement tax credits, you can claim Residential Clean Energy credits for a second home.
How do I claim the HVAC Inflation Reduction Act credits?
To claim Inflation Reduction Act HVAC credits, visit the Inland Revenue Service and complete the appropriate form for each credit. Following this, submit the form with your general tax return for the year.
At Anderson Air, we’re here to help.
Making the most of your HVAC tax credits can be a bit overwhelming, especially if you’re a new homeowner. Why not contact the team at Anderson Air and let us help you upgrade or replace your system and save money while you’re doing it?
