2023 Federal HVAC Tax Credits & What They Mean for You

The Inflation Reduction Act of 2022 offers homeowners significant HVAC tax credits when they update their heating, cooling, and ventilation equipment. The tax credits and federal rebates for HVAC apply to purchases of qualifying energy-efficient equipment. This opportunity is available now and runs through 2032. Let’s explore the 2023 HVAC tax credit, eligibility criteria, and exactly how to score the best financial benefits based on your situation.

Understanding HVAC Tax Credits

The 2023 HVAC tax credits incentivize the purchase of qualifying energy-efficient HVAC systems or equipment through the year 2032. The goal is to help Americans conserve energy, reduce their carbon footprint, and heat and cool their homes while spending less on utility bills. Government rebates for HVAC equipment also help to stimulate the economy and make green technology more accessible to more homeowners.

Eligibility Criteria for HVAC Tax Credits

All homeowners who purchase and install qualifying energy-efficient HVAC equipment between January 1, 2023, and December 31, 2032, qualify for the 2023 HVAC tax credits. There are no income restrictions on eligibility. However, the equipment must be properly installed in the homeowner’s primary or secondary residence. Both existing homes and new builds qualify, but rental properties do not.

Types of HVAC Upgrades Eligible for Tax Credits

The HVAC tax credits apply to specific equipment purchases that meet rigorous energy-efficiency standards. The following terms describe the energy-efficiency ratings used to determine which HVAC equipment qualifies for the tax credit:

SEER2 (Seasonal Energy Efficiency Ratio 2): The ratio is calculated by dividing cooling output by the wattage used during the three summer months.
EER2 (Energy Efficiency Ratio 2): Measuring air conditioning efficiency, EER2 divides cooling capacity by the maximum electricity drawn in a static test.
HSPF2 (Heating Seasonal Performance Factor 2): This standard is determined by dividing the heat output during winter by the electricity used.
AFUE (Annual Fuel Utilization Efficiency): This is the ratio of annual heat produced to the total fossil fuel energy used.

Rest assured, homeowners are not asked to navigate the math or standards. Instead, look for the Energy Star label to know whether the following equipment meets the new standards to qualify for the HVAC tax credit:

Qualifying Equipment

Central air conditioning
Furnace
Boilers
Air-source heat pumps
Biomass stoves
Geothermal heat pumps

Financial Benefits

The HVAC tax credit is 30% of the cost of qualifying energy-efficient equipment purchased and installed during the specific tax year. So, if you install a new air conditioner this year, you qualify for the tax credit. Then, if you install a new furnace the following year, you qualify for an additional tax credit. This is currently scheduled to continue through December 31, 2032. However, please remember that tax laws and credits can change, so it’s best to act quickly.

Further, it’s important to know that the HVAC tax credit total dollar amount is capped for different types of qualifying equipment. For instance, the federal tax credit for heat pumps is capped at $2,000, while the credit for air conditioners is capped at $600. Here is a breakdown of HVAC tax credit caps:

Heat pump — up to $2,000
Boiler — up to $2,000
Biomass stove — up to $2,000
Air conditioner — up to $600
Furnace — up to $600

The HVAC tax credits are available through 2032, but the annual limit on the tax credits is $3,200.

Filing Procedures and Documentation

To receive the HVAC tax credit for 2023, you must file Form 5695, Residential Energy Credits Part II, with your taxes. File for the credit for the same tax year in which you purchased and installed the qualifying equipment. Be sure to save your receipts for the equipment purchase and the installation.

Strategies for Maximizing HVAC Tax Credit Savings

Due to the equipment caps and the annual limit of $3,200 on the 30% HVAC tax credit, spreading your energy-efficient home improvements over a few years will help you maximize your tax credit savings. The 2023 Energy Efficiency Home Improvement credits extend to many other energy upgrades in addition to HVAC equipment, so take that into consideration.

Let’s say you plan to purchase a new heat pump with a $2,000 tax credit. Upgrading your insulation at the same time will save you further on your energy bills and let you claim an additional $1,200 credit, getting the full HVAC tax credit benefit for the year. So, wait until the following year for a new water heater with a $2,000 credit, and get the new windows and doors that year to maximize your tax credit savings.

Navigating State and Local Tax Incentives

In addition to the federal tax credit for heat pumps, air conditioners, and other HVAC equipment, many states and counties offer tax incentives too. To find a comprehensive list of energy-efficiency incentives by state, you can visit the Database of State Incentives for Renewables & Efficiency (DSIRE). Many utility companies also offer additional tax incentives. While the federal HVAC tax credits are not based on income, some additional benefits are. Take the time to study your options to maximize your savings.

Common Misconceptions and FAQs About HVAC Tax Credits

It’s essential to get the real facts about the Inflation Reduction Act of 2022 and the HVAC tax credits of 2023. Let’s clear up some misconceptions:

Homeowners are required to upgrade their HVAC equipment: FALSE.

This is an incentive, not a mandate. No homeowners are required to replace or upgrade their equipment before the end of its functional life.

The energy-efficiency standards are the same for everyone. FALSE.

Your climate greatly impacts the energy efficiency of various types of HVAC equipment. So, the energy standards vary by climate region.

New energy-efficiency standards make equipment less effective. FALSE.

The entire point of the new, more rigorous energy-efficiency standards is to develop equipment and install systems that do the job better and use less energy.

Qualifying equipment saves on utility bills and receives the HVAC tax credits. TRUE.

Upgrading your HVAC equipment to more energy-efficient models cuts your monthly utility bills while also providing tax credits that add even more savings.

Breathe Easy with Professional HVAC Solutions

HVAC systems, especially ones that have not been well-maintained, become less efficient over time. If your HVAC system is inefficient, requires frequent repairs, or is over 12 years old, now is a great time to consider replacing it. Existing HVAC tax credits can help you upgrade to a newer, more energy-efficient HVAC system.

Aire Serv^® is your full-service HVAC company. For comprehensive HVAC services, including the installation of an energy-efficient HVAC system that could help you benefit from HVAC tax credits, contact your local Aire Serv today! We’re your heating, cooling, and ventilation partner who is ready to help whenever you need us!

Trust your local Aire Serv team to put your health and comfort first. Our exceptional service combined with the Neighborly Done Right Promise™, which backs all our work, ensures we’ll get the job done right.

Request an appointment today, and breathe easy with Aire Serv!