Everyone loves a good tax break, especially when you’ve made big and sometimes unexpected purchases throughout the year. One way that taxpayers can get a break is by taking advantage of federal AC tax credits. These federal tax credits can reduce the amount of taxes you owe if you’ve made improvements to your energy efficiency. Let’s get into the details!

What is the Inflation Reduction Act 2022 and How Does it Help With Energy Costs?

In August of 2022, President Biden signed the Inflation Reduction Act, which, among other things, allocates funding for climate protection. This bill furnishes the government with the resources to issue tax credits and rebates to people who upgrade their HVAC systems, predominantly homes that install multi-zone mini-split systems. Depending upon the individual’s case, other electrical necessities such as wiring and circuit boxes could also qualify.

What is the Federal Energy Tax Credit?

The Federal Energy Tax Credit is a tax credit available to American taxpayers that reimburse them for a portion of the costs associated with certain energy-efficient home improvements. These non-business energy property tax credits are available for qualifying purchases like insulation, certain windows and doors, water heaters, roofs, and home energy-efficient heating and cooling systems.

How Does the Federal Energy Tax Credit Work?

The Federal Energy Tax Credit allows homeowners to subtract a certain amount from the money they owe to the IRS for improvements they make to their air conditioning or heating systems. Generally, the credit ranges from 10-30%, though it may be higher or lower depending on the specifics of the purchase. This includes investing in items like solar energy systems, wind energy systems, geothermal energy systems, fuel cell systems, hybrid vehicles, and high-efficiency heating and air conditioning systems.

This means that if you owed $3,500, but spent $5,400 in climate control upgrades, you could subtract the remaining $1,900 from your tax payment. Tax credits are different than rebates, rather than getting a payment sent to you, the money is deducted from what you owe to the IRS. In order to be eligible, you will need to submit an IRS Form 5695 with your taxes. The AC tax credit is different than rebate programs. The money from the credit won’t be refunded to you, but it will decrease your tax bill.

Specifics of What’s Required to Receive Tax Credits for HVAC Upgrades

As part of the Inflation Reduction Act, in order to receive residential energy credits for AC upgrades, homeowners must meet the following criteria:

1. The HVAC equipment must qualify as an energy-saving home improvement. Only qualified air conditioners and qualified heat pumps will be covered. This is determined based on the minimum efficiency ratings established by the U.S. Department of Energy (DOE) and by the regional energy efficiency program’s standards for an efficiency tax credit. That means the unit must be energy star-certified.

2. Homeowners must meet the requirements of the Inflation Reduction Act, which include having an existing HVAC system that was installed prior to the date of the Act’s enactment and is currently in use in the home. New construction will not qualify for energy programs like this one and the AC or heat pump installations must be upgraded in your primary residence.

3. Homeowners must purchase and install one of the qualifying HVAC equipment listed under the Act. Homeowners must also use a certified contractor or installer to install the new equipment.

4. Homeowners must provide documentation that the new air conditioner (or other appliance) meets the minimum efficiency standards.

5. Homeowners must also provide proof of purchase and evidence that the system has been correctly installed and is in working order.

By complying with the requirements of the Inflation Reduction Act, homeowners may qualify for tax credits of up to $500 for HVAC upgrades.

All Eligible Equipment:

Energy tax credits apply to appliances that provide energy savings in your home other than a cooling system upgrade as well. Those appliances qualified for tax credits under the IRA are:

  • Central air conditioners
  • Advanced main air circulating fan
  • Biomass stoves
  • Air source heat pumps
  • Geothermal heat pumps
  • Gas, propane, or oil hot water boilers
  • Gas, propane, or oil furnaces and fans
  • Non-solar water heaters

Depending on the appliance, the incentive offered can be up to $300 per appliance on your tax return.

How Eligible Homeowners Can Take Advantage of AC Tax Credits

For all the detailed information and any current updates or provisions for qualified HVAC improvements, read more here. You might also benefit from consulting with a tax professional to make sure you get the most from your credits. If you are interested in taking advantage of the HVAC tax credits and getting the new AC unit you’ve been needing, Contact Dolphin Cooling and Heating today for your free estimate!