HVAC systems are important in keeping your home temperature at suitable levels year-round. Nevertheless, this is a fairly costly investment – installing a new HVAC system. You’d be surprised what tax credits there are for energy-efficient upgrades, including HVAC systems, and many homeowners don’t even know.
A tax credit like this can significantly help lower what you spend toward your energy costs while improving home energy efficiency. So, how are these credits claimed? In this guide, we will break down how it works, knowing that you can save money on your HVAC installation and bill at the same time.
Summary of Steps:
- Find out if the type of HVAC system you install meets eligibility for tax credit.
- Check if your HVAC system has met the criterion of energy efficiency.
- Get documentation and receipts for your HVAC installation.
- If you do your taxes, you file IRS Form 5695.
- If you require help, consult a tax professional.
- Increase home comfort and save energy and money.
Step 1: Check Your Eligibility for the Tax Credit
The first thing to know is if your HVAC system is eligible for a tax credit. Some new installations don’t, so you’ll have to check that the system you’re installing is one of these.
To encourage eco-friendly living and decrease energy intake the federal government offers tax credits for homeowners who install energy efficient heating ventilation and air conditioning systems. The incentive usually pertains to systems that meet or beat certain energy efficiency requirements required by the Environmental Protection Agency (EPA), and by the Department of Energy (DOE).
To check eligibility:
- Find a list of qualifying HVAC systems at the Energy Star EPA’s website.
- Check qualifications for systems such as central air conditioners, heat pumps, and furnaces.
- Make sure your new HVAC system is installed in your main home and not in a rental or vacation home.
Step 2: Ensure Your HVAC System Meets Energy Efficiency Standards
Different HVAC systems are not created equally in terms of energy efficiency. In order to qualify for the tax credit your system must meet the government’s specific energy efficiency standards.
Here’s what to look for:
- Central Air Conditioners: They must have a Seasonal Energy Efficiency Ratio (SEER) of at least 16.
- Furnaces: It must have an Annual Fuel Utilization Efficiency (AFUE) rating of 95% or higher.
- Heat Pumps: They must have a SEER of 15 or more and a minimum HSPF of 8.5.
When deciding on your new HVAC system, get the technical information from the manufacturer or installer. A quick check against the information on the unit itself might be good, but most high-efficiency systems will be clearly labelled with their energy ratings.
Step 3: Gather Necessary Documentation
If you own a new HVAC system after all of this is done, you’ll have to gather the appropriate paperwork to qualify for the tax credit. Proof that your system qualifies will be required by the IRS, and that’s where the right documentation comes in handy.
The paperwork you’ll need includes:
- Manufacturer’s Certification Statement: Additionally, this document confirms the energy efficiency of the HVAC system, for which it qualifies for the tax credit. Usually, you can get this from your manufacturer or installer.
- Receipts or Invoices: Always keep every receipt and invoice … This is necessary to verify your expenses.
- Form 5695: If you’re going to claim the Residential Energy Credit when filing your taxes, this is the form you’re going to have to fill out.
Keep these documents until tax time. If you have everything organized beforehand, you will find the filing process easier and don’t miss out any potential savings.
Step 4: Complete IRS Form 5695
When you file your tax return, you’ll need to fill out IRS Form 5695 to claim your HVAC tax credit officially. This form has been specifically designed for homeowners claiming energy credits for home improvements, including HVAC systems.
Here’s a step-by-step guide to completing Form 5695:
- Download the Form: Form 5695 is available from the IRS website or your tax professional.
- Fill in Your Personal Information: You will enter your name, your address, and your Social Security number on the form.
- Fill in the HVAC System Information: If you replaced your old HVAC with a new one, enter the cost of that new HVAC system in the corresponding Residential Energy Credits section. That could be for central air conditioning, heat pumps, or furnaces.
- Calculate the Credit: Your tax credit is generally 10 percent of the total price of your HVAC system topped off at no more than $500. The credit amount, however, may vary according to type of system installed.
- Submit with Your Tax Return: When finished, file Form 5695 with your tax return. Make sure to snag a copy for your files just in case you need it later.
Step 5: Consult a Tax Professional if Necessary
Although the process for claiming an HVAC tax credit is simple enough, tax laws can change, and nuances may apply based on your own situation. If you’re new to the process or unsure about any part of it, check with a tax professional before you file to maximize the amount you can save on your taxes.
A tax professional can:
- You must be sure you are getting the correct amount for your HVAC tax credit.
- It will help you avoid making errors (which your clients might capitalize on) that could trigger an IRS audit.
- They will advise you about other credits or deductions to which you might be entitled, such as rebates for other energy-efficient home improvements.
If you have questions, don’t hesitate to reach out to an expert as the savings from the credit can be substantial.
Step 6: Enjoy Energy Savings and Long-Term Benefits
After you’ve staged your tax credit, you can start to enjoy the benefits of your new HVAC system. But an energy-efficient system isn’t just a big money saver on your tax returns; it also saves you money each month on your energy bills. As time passes, the savings amount can soon be pretty substantial, enough to pay for the installation itself.
Here are some additional perks of upgrading to an energy-efficient HVAC system:
- Lower Energy Bills: Using less energy to heat or cool your home means less expense for your utility bills.
- Improved Home Comfort: A modern HVAC system is capable of keeping you and your home comfortable year-round with improved temperature control and air quality.
- Increased Home Value: Upgrades like a new HVAC system may increase the value of your home, and in the present, they’re more likely to be energy efficient.
Call to Action: Let the Professionals at Finest Heating & Air Handle Your HVAC Installation
Installation of a new HVAC system is a large investment, but it’s an investment that will likely more than pay for itself. The benefits are obvious – improve your home’s comfort or save money on energy costs. Not only will you do your part, but by using the federal tax credit, you’ll enjoy a reduced outlay when the unit is installed.
Finest Heating & Air is here if you’re thinking about upgrading your HVAC system. Our team of professionals will help you choose the right energy efficient system, and then follow the tax credit standards. We’ll take care of the installation for you with elegant precision so you can begin to reap the rewards immediately.
Now’s the time to contact us for a consultation, and take the first step toward an energy efficient, more comfortable home.
