Expanded Federal income tax credits and deductions became available to home and commercial property owners and builders on January 1, 2023. The Inflation Reduction Act of 2022 expanded energy-efficiency tax credit amounts and types to incentivize Americans to make homes and buildings more energy-efficient and reduce demand for fossil fuels as the country transitions to cleaner energy sources.
If you have an aging HVAC system or are planning on making an upgrade, there are tax credits you can take advantage of to save money on an energy-efficient HVAC upgrade. Beyond savings during tax season, energy-efficient HVAC systems can help you save money on your energy bills long-term and increase the value of your home. We’re going to break down how to take advantage of these credits and save money on your next HVAC installation and your energy bills.
HVAC Tax Credits for Homeowners
According to Energy Star, tax credits available to homeowners can provide “up to $3,200 annually to lower the cost of energy-efficient home upgrades by up to 30 percent”. The amount you can claim will depend on what type of HVAC system you choose to have installed.
There are various tax credits for energy-efficient HVAC improvements including:
- Central Air Conditioner Tax Credit: You can claim 30% of project costs up to $600 dollars
- Air Source Heat Pump Tax Credit: You can claim 30% of project costs up to $2,000 dollars
- Furnace Tax Credit: You can claim 30% of project costs up to $600 for qualifying gas, natural gas, and propane furnaces.
- Hot Water Boiler Tax Credit: You can claim 30% of project costs up to $600 dollars for qualifying gas, natural gas, and propane oil boilers
- Biomass Fuel Stoves & Boilers Tax Credit: You can claim up to 30% of project costs up to $2,000 dollars
Follow these links to find qualifying products for each tax credit and other tax credits for home improvements:
| Qualified Ducted Air Conditioners | Qualified Ducted Air Conditioners |
| Qualified Ducted Heat Pumps | Mini Split Heat Pumps |
| Qualified Hot Water Boilers | Qualified Furnaces |
Who Can Claim These Home Improvement Tax Credits?
As stated on the Energy Star website, “upgrades must be to an existing home & your principle residence”. That means that the improvement must be to the home you live in most of the time and new construction and properties being rented out do not apply. These tax credits also only apply to homes in the United States.
The IRS website states, “Homeowners who improve their primary residence will find the most opportunities to claim a credit for qualifying expenses. Renters may also be able to claim credits, as well as owners of second homes used as residences. The credits are never available for improvements made to homes that you don’t use as a residence.”
These credits can be applied to home improvements made to:
- Houses
- Houseboats
- Mobile homes
- Cooperative apartments
- Condominiums
- Manufactured homes
Tax Credits for Home Builders
As stated by the IRS, “Contractors who build or substantially reconstruct qualified energy-efficient homes may be eligible for tax credits up to $5,000 per home. The amount of the credit depends on factors including the type of home, its energy efficiency, and the date when someone buys or rents it.”
Essentially, if contractors build or renovate homes that meet certain energy efficiency standards, they can receive these tax credits as a financial incentive. It’s a way to encourage the construction of more energy-efficient homes and help both homeowners and contractors save money.
The tax credits are available for the following types of home builds:
- New Single Family Homes: You may be eligible for a $5,000 tax credit per home for meeting Energy Star requirements and having the home Zero Energy Ready Home (ZERH) Program certified. You may still be eligible for a $2,500 credit without the ZERH certification.
- Multifamily Homes: You may be eligible for $500 for meeting the Energy Star Multifamily New Construction National program or regional program requirements (or the regional program requirements). A larger tax credit of $2,500 is available for projects that meet prevailing wage requirements.
- Manufactured Homes: You may be eligible for a $5,500 tax credit for meeting the most recent Energy Star Manufactured New Homes program requirements and having the home Zero Energy Ready Home Program certified. You may still be eligible for a $2,500 credit without the ZERH certification.
Having energy-efficient HVAC systems installed in the property being built can help you meet the requirements to take advantage of these tax credits for home builders.
More Eligibility Information for Home Builder Tax Credits
According to the IRS, to for the home to be eligible for these tax credits the unit(s) must be:
- Located in the United States
- A single-family, multifamily home, or a manufactured home
- Purchased or rented by someone to use as a residence
- Certified to meet applicable energy requirements based on the type of home and date of sale
Additionally, to qualify a the IRS states that a builder must:
- Construct or substantially reconstruct a qualified energy-efficient home
- Own the home and have a basis in it during construction
- Sell or rent it to an individual for use as a residence
Claiming the Home Builder Tax Credit
Before you can claim these tax credits, the IRS states that “builders must certify that their homes meet all requirements under IRC Section 45L“.
Once this is done you can claim the credit on the appropriate form:
- Eligible contractors use Form 8908, Energy Efficient Home Credit
- Exception: If your only source to claim the credit is from a partnership or S corporation, use Form 3800, General Business Credit
Energy-Efficiency Tax Credits for Commercial Buildings
The Internal Revenue Code (Section 179D) allows for tax deductions for energy-efficient commercial buildings. The latest information available as of the time of this writing on the Energy Star website states that these credits apply to commercial building upgrades completed on or before December 31, 2022.
Owners or designers of commercial buildings or systems that demonstrate a 50% reduction in energy usage accomplished solely through improvements to the heating, cooling, ventilation, hot water, and interior lighting systems may be eligible for a tax deduction of up to $1.80 per square foot. Partial deductions of up to $.60 per square foot can be taken for qualifying measures.
How to Apply for the Commercial Building Tax Deduction
As stated on the Energy Star website, “The IRS requires that you use a qualified software program to model your energy usage. See a list of qualified software for calculating energy savings.”
Save Even More When You Choose C.D. Shanahan’s Heating, Cooling & Plumbing
These tax credits are a great way to save money on your HVAC installation in the short term, save money on energy bills long term, increase the value of your home, or build a new home. We offer some of the best heating and cooling installation prices in the DMV. When you choose C.D. Shanahan’s for your installation you’re choosing to add to your savings and you’re ensuring the work is done by the best HVAC contractors in the DMV.
Whether it’s a new home installation or making upgrades to your current home, we’ve got you covered! Fill out the form below or give us a call at 571-429-0919 to get a free quote for your energy-efficient HVAC installation.