When it comes time to install a new AC or heating system in your home, you have many different options to choose from. One particular feature that may sway which system you choose can be whether or not it makes you eligible for a tax rebate. We’ll dive into which units are eligible here so you can make a better-informed decision about which HVAC system you purchase for your home.
Inflation Reduction Act of 2022
The federal government offers homeowners an incentive on their federal tax returns under the Inflation Reduction Act of 2022. This act was created to help encourage more homeowners to invest in energy-efficient upgrades and systems for their homes. This is a big effort to help reduce the country’s reliance on fossil fuels.
Not All Units Qualify
One of the first things that you need to realize is that not all heating and cooling systems make you eligible to receive this tax incentive. The federal government has set standards for which systems have the best efficiencies and is only offering incentives on those units. You can get a list of every system that qualifies you to receive this tax incentive on ENERGY STAR’s website. In general, investing in a high-efficiency furnace, a high-efficiency central air conditioning system, a heat pump, or a ductless mini-split system will make you eligible to receive this tax incentive.
How Much Is the Tax Incentive?
The federal government has set a maximum annual incentive amount of $3,200. However, this isn’t just a standard amount that everybody gets. The amount that you can claim on your federal tax returns is going to be equal to 30% of the total cost of the new system and the labor to install it. For example, if your system had a total cost of $10,000, then you can receive $3,000 for your tax incentive.
Tax Incentive vs. Refund
It’s really important to make a distinction between a tax incentive and a refund. This tax incentive will give you a credit on your federal tax returns for what you owe. You will not be issued a refund check from the federal government for the amount of the incentive that you qualify for.
Following the example from above: Let’s say that you owe $6,000 in federal income taxes. Because you’re eligible to receive a tax incentive under the Inflation Reduction Act of 2022 in the amount of $3,000, you now only owe the federal government $3,000 in federal taxes. However, if you only initially owe the government $2,000 in federal income taxes, you will only be credited for $2,000.
That means that you won’t owe the IRS any money but you’re not going to get that additional $1,000 back in the form of a refund check. Other forms of energy-efficient upgrades under this Act aren’t allowed to be carried over to the next year. However, typically the purchase of an HVAC system does allow you to carry over that additional incentive balance to reduce your federal income taxes the following year. This means that the person who has a $1,000 credit for their federal tax returns will get to use that credit the following year to reduce their tax debt by $1,000.
Other Potential Tax Incentives and Rebates
Apart from just the federal government, it isn’t uncommon for state and local governments to also offer homeowners tax incentives for purchasing these energy-efficient HVAC systems. The particular amount of the incentive that you can qualify for is going to be highly dependent on your specific state and municipality.
One other notable advantage to purchasing a new energy-efficient HVAC system is that you may qualify for other rebates separate from tax incentives. These rebates tend to come from HVAC system manufacturers as well as local utility companies. A rebate is different from a tax incentive. With a rebate, the HVAC manufacturer will send you a check in the mail for whatever their set rebate amount is.
You simply have to fill out the necessary paperwork with the HVAC manufacturer and supply the receipt for the purchase of your new system. When it comes to local utility company rebates, they tend to work a little bit differently. Most will give you a credit on your electricity bill for the month equal to the amount of the rebate that you’re eligible for.
Reliable HVAC Installation Service
Smith & Willis Heating & Air Conditioning offers reliable HVAC installation services to the Commerce City, CO community. We can also help with all your heating and cooling repair, replacement, and maintenance needs. Simply call us today to schedule your next service consultation.
