Is Your Air Conditioner or Heat Pump Eligible for a Federal Tax Credit under the Inflation Reduction Act?

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On January 1, 2023, new federal tax credits came into effect under the provisions set forth in the Inflation Reduction Act. These tax credits cover wide range of home energy efficiency improvements, including equipment like air conditioners, heat pumps, and heat pump water heaters, as well as upgrades to the home envelope like doors, windows, insulation, etc.

These new tax credits will replace the Non-Business Energy Property Tax Credits
(https://www.energystar.gov/about/federaL_tax_credits/federal_tax_credit_archives/2022_tax_credit_information).
which were also extended under the IRA through December 31, 2022.

Central Air Conditioners:

You can claim 30% of the project cost, up to a $600 maximum credit.
The air conditioner must meet the following efficiency requirements:

  • Split Systems: ENERGY STAR certified* equipment with SEER2 2 16
  • Packaged Systems: ENERGY STAR certified equipment with SEER2 2 15.2, EER2 2 11.5 (also including gas/electric package units)

Air Source Heat Pumps:

You can claim 30% of the project cost, up to a $2,000 maximum credit.
The heat pump system must meet the following efficiency requirements:

  • Ducted Split Systems: ENERGY STAR certified equipment with HSPF 2 7.8, SEER2 2 15.2, EER2
    211.7
  • Packaged Systems: ENERGY STAR certified equipment with SEER2 ≥ 15.2, EER2 2 11.5 (also including gas/electric package units)
  • Ductless Mini-Split (Non-Ducted) Systems: ENERGY STAR certified equipment with SEER2 2 16. EER2 2 12, HSPF2 29.
  • Heat pump models with the ENERGY STAR Cold Climate* designation:
    Ducted Systems (split and packaged): SEER 2 15.2, EER2 2 10 and HSPF2 ≥ 8.1.
    Mini-Split Systems: SEER2 2 16, EER 2 9, and HSPF 2 9.5.

About Energy Efficiency Ratings - SEER2, HSPF2, EER2

A new system for rating the energy efficiency of air conditioners and heat pumps also came into effect on January 1, 2023. SEER2 (Seasonal Energy Efficiency Ratio 2), HSPF2 (Heating Seasonal Performance Factor
2) and EER2 (Energy Efficiency Ratio 2) have replaced the previous rating syster, SEER, HSPF, and EER.

Federal Tax Credit Overview

Annual Limits: 30% of the project cost up to a $3,200 annual maximum for all energy efficiency improvements claimed under this credit, subject to aggregate limits. This bregks down to:

  • Up to $2,000 annual limit toward the purchase of any combination of air source heat pumps, heat pump water heaters, and biomass stoves/boilers.
  • Up to $1,200 annual limit toward the purchase of any combination of central air conditioners, furnaces, boilers, plus other home envelope improvements (e.g. windows/doors/skylights, insulation, electrical).

There are per-project limitations as well. Below, we will detail the tax credits available for air conditioners and heat pumps. For further details about tax credits for other types of energy efficient home improvements, yisit energystar.gov (https://www.energystar.gov/about/federal_tax_credits/).

Dates: Equipment must be purchased and installed January 1, 2023-December 31, 2032.
Property Requirements: Equipment must be installed in an existing home and your principal residence (the place you occupy most of the time). New construction and rentals do not apply. The principal residence must be in the United States and may be a house, houseboat, mobile home, cooperative apartment, condominium, or a manufactured home to qualify.

Please also note that you can only claim these tax credits if you owe tax. If you do not owe tax, you will. not receive the tax credit as a refund. Tax credits are administered by the IRS, and the credit amounts you may receive are subject to IRS regulations. Therefore, we highly recommend consulting a tax professional for advice on tax preparation.

DISCLAIMER: The tax credit information contained within this website is provided for informational purposes only and is not intended to substitute for expert advice from a professional tax/financial planner or the Internal Revenue Service (IPs) Snowbird AC, does not guarantee the accuracy of the information provided.
For the most updated information on the federal tax credits, visit energystar.gov
https://www.energystar.gov/about/federal_tax_credits/)