Americans are spending more to upgrade their homes now more than ever before. Over the past decade, the home improvement industry has flourished from a $300B industry to more than $624B.
With all the money homeowners put into their upgrades, the 2023 tax season is an ideal time to see which projects offer a return on investment. Energy tax credits for 2023 touch nearly every part of today’s home. Let’s dive into the credits gained from heating and cooling equipment.
What are energy tax credits?
Upgrading your home or property with energy-efficient appliances comes with a number of tax credits. The Inflation Reduction Act notably expanded or extended the available tax credits for taxpayers.
Energy tax credits are benefits from the government when taxpayers make energy-efficient upgrades to their property. These improvements may include installing solar panels, heat pumps, windows, or insulation, among many others. Taxpayers don’t get an immediate discount on purchasing green-energy items, but they may be eligible for a tax credit.
For example, if you purchase a $15,000 energy-efficient HVAC system eligible for the 30% tax credit, you get the $600 maximum credit toward your taxes.
Air source heat pumps tax credit
Energy Star-certified heat pumps that were purchased and installed on a primary residence before December 31, 2022 are eligible for an energy tax credit of 10% of the cost (up to $500) or a specific amount from $50 – $300.
Energy-efficiency requirements apply to split and packaged systems. This credit is effective only if the heat pump began servicing an existing home serving as the primary residence. New construction and rentals do not apply.
For heat pumps purchased and installed between January 1, 2023, and December 31, 2032, the tax credit is 30% of the total project cost, up to $2,000. The equipment must meet the required standards.
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Central air conditioners tax credit
The Non-Business Energy Property Tax Credits may apply to central air conditioning units installed through the end of 2022. The tax credit amount is $300 for qualifying units installed through December 31, 2022. To verify tax credit eligibility, ask your HVAC contractor to provide the Manufacturer’s Certification Statement for the purchased equipment.
For qualifying central air conditioners installed in your primary residence between January 1, 2023, and December 31, 2032, you can claim a tax credit of 30% of the total project with a max benefit of $600. New-construction homes and rentals are not eligible for this home tax credit.
Energy Star defines eligible products as split systems with SEER2 > 16 that are Energy Star certified. All Energy Star-certified packaged systems are eligible.
Oil and gas furnaces tax credits
Oil and gas furnaces that are Energy Star certified and installed into your primary residence on or before December 31, 2022, may qualify for a $150 tax credit. Furnaces for U.S. South only, new-construction homes, or units installed in rental properties do not qualify.
You can claim an energy tax credit for oil and gas furnaces installed between January 1, 2023, and December 31, 2032. Qualifying units are eligible for up to 30% of the project cost, not to exceed $600 max credit.
Energy tax credit 2023 limits
The overall total limit for an efficiency tax credit in one year is $3,200. The limit includes a maximum credit of $1,200 for any combination of home energy improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers, and central air conditioners.
The remaining $2,000 credit is available with any combination of heat pumps, heat pump water heaters, and biomass stoves/boilers. Geothermal heat pump tax credits do not apply toward the limit of $3,200. Energy Star defines the tax credits allowed for geothermal heat pumps.
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