Upgrading your HVAC system is a big investment, and tax benefits can help make it more affordable. Depending on the type of system you install, you may be eligible for tax credits or deductions that help offset the cost. If you’re getting a new HVAC system, it’s a good idea to see if you can get any tax benefits.
Tax Deduction vs Tax Credit
A tax deduction lowers your taxable income, limiting the amount of your income that’s subject to tax. A tax credit, on the other hand, directly lowers the amount of taxes you owe. For example, if you install an energy-efficient HVAC system that qualifies for a tax credit, you could see a direct reduction in how much you owe in taxes. If the credit is worth $600, your tax bill drops by that amount.
A deduction isn’t quite as straightforward. It lowers your taxable income, which means you pay less tax, but it won’t give you direct dollar-for-dollar savings. When upgrading your HVAC, most potential tax benefits fall into the credit category, specifically those that encourage homeowners to invest in energy-efficient equipment.
What Qualifies as an Energy-Efficient Upgrade?
Not every new system is eligible for tax benefits, but upgrades designed to improve efficiency often make the cut. Systems meeting specific energy-efficiency standards can qualify for federal tax credits under programs encouraging homeowners to reduce energy use.
One common qualification is the ENERGY STAR certification. If your new unit has this label, there’s a chance it qualifies for a tax credit. These systems are tested to ensure they use less energy while maintaining the same level of comfort, which means you’re saving money on your utility bills and possibly at tax time.
High-efficiency heat pumps, furnaces, central air conditioners, and boilers are all potential candidates for tax credits. The government sets specific Seasonal Energy Efficiency Ratio (SEER) and Heating Seasonal Performance Factor (HSPF) ratings that must be met for eligibility. If your new system meets or exceeds these standards, you can usually claim a credit when filing your taxes.
How Much Can You Save?
How much you can get depends on the specific tax credit program in place at the time you install your HVAC system. For instance, federal tax credits for energy-efficient home improvements have historically covered up to 30% of the cost of qualifying systems, with caps depending on the type of equipment.
Some homeowners have been able to claim hundreds or even thousands of dollars back on their taxes for installing high-efficiency systems. However, credits aren’t always permanent — some are set to expire or be reduced in future years. That’s why checking current regulations before purchasing a new HVAC system is smart.
Beyond federal incentives, state and local programs may offer additional tax credits or rebates. Many utility companies also provide rebates for upgrading to energy-efficient heating and cooling systems. These savings, combined with any tax benefits, can make a new system more affordable than it first appears.
How to Claim Tax Benefits
You’ll need to keep good records to claim tax benefits for an HVAC installation or upgrade. The IRS and other agencies require documentation to prove that your system meets the required energy-efficiency standards. Save all purchase receipts and invoices related to both the equipment and installation. These records prove your purchase and can be required when filing for credits. Also, make sure to get a copy of the manufacturer’s certification statement to verify that your system meets the required energy efficiency standards.
If you don’t have this paperwork, you might miss out on the credit. It’s also smart to check with a tax pro to make sure you’re filing it correctly and getting the most savings possible. Remember that most HVAC-related tax credits must be claimed in the tax year the system was installed. If you install a qualifying unit in December, you’ll need to claim the credit when filing taxes for that year.
We Can Help
A new HVAC system can do more than just keep your home comfortable. It might also provide tax savings if you install the right kind. Understanding the difference between deductions and credits, knowing which systems qualify, and keeping proper documentation can make a major difference when tax season rolls around. At Bratcher Heating & Air Conditioning, Inc. in Peoria, IL, we install all types of heating and cooling systems, including geothermal and commercial systems. Call us today to explore your options and maximize your savings if you’re considering an upgrade.
