How to Take Advantage of the Federal Tax Credits for Consumer Energy Efficiency – and Possible State Programs, too
If you are in the market for a new gas furnace then you are concerned about saving money in any way possible while getting a reliable system you can depend on this coming heating season. You probably know that the federal government’s American Recovery and Reinvestment Act makes significant federal tax credits available on energy saving gas furnaces, heat pumps, A/C units, roofs, windows and doors, insulation and more. Receiving a tax credit for 30% of your costs with a $1,500 limit is well worth closer inspection before you go shopping. Note that a tax credit is much more valuable than a common deduction because it offers a dollar for dollar savings. In other words, you will enjoy a full $1,500 reduction of your federal tax liability rather than $1,500 reduction in your taxable income.
The details get a bit complicated so let’s look at the criteria used to make this determination.
The gas furnace must meet strict guidelines for fuel usage that go beyond criteria that qualify the unit for an Energy Star rating. Take note: Not all Energy Star furnaces automatically qualify for the home energy tax credit. The list of qualifying specifications includes:
1. 95% AFUE or higher for gas and propane. The AFUE is the annualized fuel utilization efficiency.
2. For Heat Pumps and complete HVAC systems that include air conditioning additional criteria are in place.
• Split systems: Seasonal Energy Efficiency Ratio (SEER) of 16; EER of 13
• Package systems: SEER of 14; EER of 12
3. Systems qualify that employ an “advanced main air circulating fan” which is an energy-saving fan or blower motor that moves the heated air into your home directly or through the duct work, qualify. The fan must consume no more than 2% of the unit’s total energy usage and will qualify for a tax credit even if the system as a whole does not. If that is the case with the unit you purchase you will be able to apply for a tax credit equivalent to 30% of the itemized cost of the fan alone. Note: It is not necessary that this type of fan be employed in the unit.
4. While the maximum tax credit is $1,500 it may be based upon more than one qualifying purchases – a new gas furnace and new energy efficient windows, for example.
5. It is worth noting that the amount used to figure the 30% tax credit on any system or component can include the cost of installation.
6. Don’t overlook possible programs offered by your state, local government or utility companies. A complete list is included in the Database of State Incentives for Renewables and Efficiency.
7. Even if you decide not to purchase a new system their are extremely effective methods to cut your energy costs usings tried and true methods.
The first thing to do is to save your receipt along with the Manufacturer’s Certification Statement that outlines the exact specs of the unit. While you may not be required to submit these items, it is important that you retain them in the event the purchase is ever questioned.
Secondly, when you file your taxes include with them a completed IRS form 5695 and include the amount on your 1040 in the appropriate location for the residential energy tax credit.
These valuable incentives are helping residential customers cover the cost of replacing outdated, inefficient furnaces in their primary residence. Going forward, these high efficiency gas furnaces will save them money on their utility bills each season. Those dual benefits form a winning combination that many homeowners are taking advantage of while the tax credits remain in place.
The Energy Tax Credit program and the Department of Energy page on tax breaks