Save More Under the Inflation Reduction Act with a High-Efficiency HVAC Tax Credit
Heating and air conditioning tax credits for energy-efficient home improvements are extended and expanded by the Inflation Reduction Act.
A tax credit for investing in new high-efficiency heating and cooling equipment – the Nonbusiness Energy Property Credit – actually expired at the end of 2021. However, the Inflation Reduction Act brought it back to life and improved it substantially.
A credit is a dollar-for-dollar reduction off your Federal Income tax bill. For every dollar you spend on qualified equipment – you get to take a dollar off of your Federal tax bill! Anyone can qualify for, and advantage of, these credits regardless of income. (We aren’t tax professionals but that sounds like a pretty good deal to us.)
In 2023, Credits Will Get Even Better
The federal high-efficiency tax credit for HVAC systems was revived for the 2022 tax year, and the old rules apply. Starting in 2023, the credit will be even bigger. It will be equal to 30% of the costs for all eligible home improvements made during the year, up to a maximum amount. A few items have been added and others have been subtracted but since we are in the heating and air conditioning business – we’ll talk about how these credits work for the purchase of a new heater, air conditioner, heat pump, boiler, or water heater.
The largest credits and rebates are available for heat pumps, a high-efficiency system that heats and cools your home in place of a furnace (or boiler) and an air conditioner. When coupled with cleaner electricity sources, a heat pump can be a great way to control the temperature indoors. And while older heat pumps struggled in cold climates, many of the latest models can even work well in frigid winter temperatures.
The heat pump must meet some pretty stringent efficiency requirements established by the Consortium for Energy Efficiency and the exact rules for this are still being worked out by the government and the equipment manufacturers. The goal is to help you to purchase the highest possible efficiency equipment to replace old inefficient fossil fuel powered items.
Plus, the $500 lifetime limit will be replaced by a $1,200 annual limit. So, if you spread out your qualifying home projects, you can claim the maximum credit each year. The annual limits for specific types of qualifying improvements will also be modified – and for the better. Beginning in 2023, they will be capped at 30% of the qualified cost of the following items:
- Up to $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and boilers (for this one category, the $1,200 annual limit may be exceeded)
- Heat pumps, central air conditioners, water heaters, furnaces, and boilers as long as the appliance meets the highest efficiency tier (not including advanced tiers).
Contact Burns & McBride to learn more about federal tax credits for high-efficiency heating and AC systems
Confused yet? As you can see this is complicated. But there is potentially a lot of money at stake for you. It is our job to keep you informed about it. As more information becomes available, and the details are finalized, count on us to keep you informed.