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30 Jan 2024

Author: Jeff O'Hara

Every year, we post an updated blog about tax credits potentially available to our customers so they can take advantage of the savings.

Also, every year, Houston homeowners leave a lot of money on the table. Many families who have recently upgraded their residential HVAC system aren’t aware that several credits are available from the Federal Government that can be used to reduce their tax bill. The amounts and types of credits for qualifying expenses were greatly expanded with little fanfare by the Inflation Reduction Act of 2022 (IRA)

To ensure our loyal customers –and all of you future Nick’s clients—are up-to-date on what the IRA and other HVAC-specific legislation mean, and how they can save you money at tax time, we will review the bill’s goals and what it can mean when you file your taxes in 2024. 

Let’s Start by Introducing the Inflation Reduction Act. 

In August of 2022, President Biden signed the Inflation Reduction Act, which includes provisions for lowering prescription drug prices, extending certain aspects of the Affordable Care Act, and significant climate protection funding. 

This bill also provides funding for programs that allow the federal government to offer specific tax credits and rebates for installing new or upgrading existing HVAC equipment. The most significant rebates are for homes that install multi-zone mini-split heat pump systems. Still, there are provisions for other HVAC-related improvements, plus electrical circuit box and wiring upgrades, that may allow you to qualify. 

What is a Federal Energy Tax Credit?

The Federal Energy Tax Credit is a specified amount that the homeowner can subtract from taxes owed to the IRS to help offset the cost of improvements to the home’s energy efficiency. 

How Does the Federal Energy Tax Credit Work? 

If you made qualified energy-efficient improvements to your home after January 1st, 2023, you could be eligible for up to $3,200 in tax credits. And this isn’t a “one-time only” offer. This $3,200 credit can be applied to future improvements to your home’s energy efficiency through tax year 2032.

Beginning January 1st, 2023, the Energy Efficient Home Improvement Credit can equal up to 30% of certain eligible expenses, including:

  • Qualified energy improvements installed during the previous year.
  • Residential energy property expenses.
  • Home energy audits. 

There are limits on the allowable annual credit as well as on the amount of credit for certain types of qualified expenses.

The maximum allowable credit each homeowner can claim for a given year is:

  • $1,200 for energy property costs and specific energy-efficient home improvements with a limit of $250 per door, whole-house window installations are capped at a $600 credit, and an energy audit will get you a $150 credit.  
  • $2,000 per year for qualified heat pumps and biomass stoves or boilers. 

The tax credit has no lifetime dollar limit, and you can claim the maximum annual credit every year that eligible improvements are made through the end of 2033. The credit, however, is “non-refundable”, meaning that you won’t get back more on the credit than you owe in taxes, nor can you apply any excess credit to a future tax year. 

To file for an energy tax credit, you must complete and file an IRS form 5695 with your tax return. Since this is a tax credit, please don’t consider it a refund. You won’t be getting this money back, but it will be deducted from the taxes you owe for that year.

Are There Different Types of Energy Tax Credits? 

There are two types of residential energy tax credits: residential and non-business. Residential tax credits include solar, wind, geothermal, and fuel-cell technologies, such as solar panels, solar-powered water heaters, and geothermal heat pumps. Non-business tax credits cover materials and equipment that meet the Department of Energy’s standards, including insulation, roofs, and windows.

What Tax Credits are Available for All Homeowners?

Houston residents have access to tax credits equal to up to 30% of the cost of installing new HVAC equipment that meets specific efficiency requirements. The tax credit can also be applied to upgrades to your HVAC system, making it more energy efficient.

Since this bill is intended to help protect the environment, you’ll probably have to buy an appliance with a higher Energy Star rating than the basic model. There will also be SEER rating minimums to be adhered to claim the Federal Energy Tax Credits. 

Qualifying Installed Appliances and Their Credit Limits:

  • Heat Pump Water Heaters: $2,000
  • Biomass Stoves and Boilers: $2,000
  • Natural Gas Water Heaters & Furnaces $600
  • Central Air Conditioning: $600
  • Electrical Panels and Related Equipment: $600
  • Advanced Main Air Circulating Fan: $50

Qualifying Home Improvements:

  • Windows, skylights, and doors that have achieved Energy Star ratings could be eligible for a credit equal to 10% of their cost (minus installation) up to $200 for windows and skylights and $500 for doors.
  • Insulation products, including rolls, expanding foam sprays, blown-in fiberglass, and other typical products, can qualify for a credit for 10% of the cost of materials up to $500.
  • Home Energy Audits that are accompanied by a written report that identifies the most significant energy improvements to the home – and are performed by a certified home energy auditor—are eligible for a $150 tax credit. 

Remember that the annual maximum cap on these tax credits is between $1,200 and $3,200, depending on your efficiency improvements. These tax credits have also been extended to the end of 2032, so you can spread efficiency improvement projects over several years without a lifetime cap. 

What Are the 2022 Solar Tax Credits?

If you installed a solar energy system in your home in 2023, you could deduct up to 30% of the materials and installation costs when filing in 2024. Among the expenses that can be deducted are the solar panels cost, labor costs, permit fees, inspection costs, and any additional installed solar equipment.

Just be sure that you own the system. If you sign a lease or a power purchase agreement with a solar installer, you are not the system’s owner and will not be eligible for the credit. 

Are Any Rebate Programs Available?

High-Efficiency Electric Home Rebate Act (HEEHRA)

HEEHRA is a ten-year, $4 billion program, started in 2023 that will allow low- and moderate-income households to improve efficiency by making necessary electrical upgrades and installing higher-efficiency appliances to save money on power bills. Direct, point-of-sale rebates are available for the following upgrades: 

  • $8,000 for heat pump installation.
  • $4,000 for electric load center (breaker box) upgrades.
  • $2,500 for electrical wiring improvements.
  • $1,750 for installing a heat pump water heater.
  • $1,600 for insulation, air sealing, and ventilation upgrades.
  • $840 for a stove, cooktop, range, oven, or heat pump clothes dryer.

HOMES Rebate Program 

Allocates $4.3 billion to the Department of Energy to implement a rebate program for homeowners making whole-house energy upgrades. An example of a qualifying upgrade would be replacing an old central HVAC system with a multi-zoned, mini-split heat pump system. 

Homeowners can claim up to $2,000 (or 30% of the cost) toward the purchase and installation of the heat pump, plus any electrical upgrades needed to ready the home.

Additionally, state-based programs under the HOMES Act umbrella offer low- and moderate-income households rebates on heat pump installations of up to $8,000 and $4,000 for electrical upgrades. 

Before We Go.

We hope the information provided in this blog encourages you to look further into some of the tax credits and rebates that are available to you. Please keep in mind you are reading a blog written by a guy who writes content for an HVAC company and is not a certified tax expert or an accountant. Before signing any contracts, please discuss any of these home improvements with your accountant or tax preparer.

Bring Your Home’s Comfort Systems Into the 21st Century and Save Big!

Don’t let the opportunity to save serious money on a new, upgraded central HVAC system, single or multi-zone heat pump, or any new HVAC appliance that improves efficiency and outperforms your current comfort systems. Using the Federal Energy Tax Credits can help you add value to your home and make it more energy efficient by installing Energy Star-rated appliances.

If it’s time to upgrade your heating and air conditioning systems, and you want to maximize efficiency, performance, and cost savings, call Nick’s Air Conditioning today. Nick’s exclusively offers central HVAC systems from Trane® Technologies and mini-split heat pump systems from Mitsubishi Electric Trane® to ensure optimum comfort and value. 

Call Nick’s Today. We’re on the Way. 

Please be advised that the information provided on our blog is for general informational purposes only, sourced from: https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit and https://www.irs.gov/credits-and-deductions-under-the-inflation-reduction-act-of-2022.

It is not intended to be and should not be interpreted as professional tax advice. Nick’s Plumbing and Air Conditioning does not claim to be a licensed tax preparation entity, and we do not provide tax, legal, or accounting advice.

We strongly encourage you to consult with a qualified tax professional or accountant to obtain advice tailored to your specific circumstances and to ensure you are making the most informed decisions regarding your tax liabilities and benefits. The tax credits and rebates discussed in our communications are subject to change and may vary based on individual situations and IRS regulations.

We aim to keep our valued customers informed about potential savings opportunities, but it’s crucial to seek expert guidance for your specific tax-related queries.

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