When the US Congress passed the Inflation Reduction Act of 2022, it mandated that the IRS create a new federal income tax credit for specific residential HVAC system installations. The credit is available for homeowners who upgrade the HVAC system in an existing single-family dwelling. That means you won’t be eligible when installing an HVAC system in a new home you’re building. To qualify for the credit, the HVAC equipment must meet specific requirements. In this article, we’ll explain what these requirements are and what types of HVAC equipment are eligible so that you can make sure that your replacement qualifies.
Available Federal Tax Credits for HVAC System Replacements
The tax credit program covers replacement central air conditioners, heat pumps, gas furnaces, ductless mini-splits and geothermal HVAC systems. The program is divided into two different categories for standard HVAC equipment. Geothermal systems are in their category.
The first category covers furnaces along with central and ductless air conditioning systems. Each of these can be eligible for up to a $600 credit. If you were to install a new furnace and a new central or ductless AC system in the same year, you could get up to a $1,200 credit. Central and ductless heat pump systems fall into the second category and can earn you a $2,000 credit.
We say “up to” because the maximum you get from any of the credits is capped at 30% of the installation cost, meaning you may not earn the full amount. The credit for installing a geothermal HVAC system is also capped at 30% of the total cost. However, there is no maximum for geothermal systems, meaning you’ll always get 30%.
The tax credit is nonrefundable, meaning that you can apply against whatever you owe on the past year’s taxes. You can’t apply for a credit amount higher than your taxes owed. You can only apply the credit for the previous year, as any excess credit above what you owe can’t be carried over to future years.
How to Ensure Your New HVAC System Qualifies for a Tax Credit
The most important thing to note is that your new HVAC system must have a specific energy-efficiency rating to make you eligible for the tax credit. Specifically, it must meet the requirements for your area to earn an ENERGY STAR certificate. These requirements typically increase a bit from year to year. As such, a system that meets the requirements in 2025 may not qualify for the credit in the coming years.
The other main requirement is that the furnace and air conditioning company that installs the new system must be certified and licensed in your state. That means you must be careful about who you hire to install the system.
The credit program covers each fiscal year, and you must file the necessary IRS form when you file your federal income taxes the following year. In previous years, all you had to do was fill in the total cost of the installation on the form and then calculate what 30% of this cost is to see whether you’re eligible for the full amount. This is still true when installing a furnace or AC. If you install a heat pump, you must include the manufacturer’s four-digit QM (qualified manufacturer) code to prove the manufacturer is approved.
When filing your taxes, you don’t need to prove that the system meets the energy efficiency requirements or that the invoice shows how much you paid. However, you should make sure that you keep the invoice and documentation on hand in case your taxes ever get audited. Work with professionals to ensure that you are following the rules correctly. HVAC installers can provide you the documentation you need to calculate your eligible credit. However, a tax professional should be the final word in how you apply for any credit.
Since 2008, SoBellas Home Services has been one of the leading HVAC companies in El Paso, Las Cruces and the surrounding areas. If you want to upgrade your heating or cooling and save money on your energy bills, we have a range of excellent options to match your needs and qualify you for a tax credit. We also offer financing options for new HVAC equipment that is available on approved credit.
To schedule an appointment with one of our installation professionals and get help choosing the right system for your home, contact us today.
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