There’s been some criticism of available tax credits for 2011 when it comes to HVAC. This is because some of the more generous provisions were allowed to expire at the end of 20101. But even with the adjustments, there are still incentives to be had.
The real differences are how the amount you can take off your taxes is calculated. While in 2010, percentages (of the total cost) were used, now there are fixed amounts offered2. So total credits are much lower than what the percentages would be for expensive systems. There is one exception to this – geothermal heat pumps still qualify for 30% based on cost. And this credit will be available till 20163.
Energy Star or not?
The purpose of the air conditioner tax credit is to push consumers into replacing outdated, inefficient systems with more modern, lower demand equipment. When the legislation was first written, almost any Energy Star rated unit would do – not so for the HVAC rebates in 2011. It’s important to find out the SEER or the EER rating instead. The Energy Star logo may appear, even when a product doesn’t meet the requirements for the tax credit.
The information below is based on SEER or EER and refers to federal taxes. Some states still have HVAC rebates in effect for State taxes and you can check here4. Many of these still use the Energy Star rating. One final consideration on the Energy Star rating is the cost savings when operating these units. Electricity costs are predicted to continue to rise, and even without a tax break, the rating is worth considering.
SEER (Seasonal Energy Efficiency Ratio) and EER (Energy Efficiency Ratio)– These two terms are best understood as the HVAC equivalent of miles per gallon in a car. The EER (an older rating) would be the MPG on the highway, and the SEER for city driving. The reason is that the SEER takes into account cycling – the power wasted when a unit has to turn on and off repeatedly (like stop-and-go city driving)5; it also uses a more realistic, climate-based average temperature, while the EER is calculated based on a fixed temperature and humidity instead (95 degrees). The EER rating is usually used in commercial installations and the SEER in residential.
Typically, the EER will be a couple numbers lower than the same unit measured in SEER, but there is no easy way to convert from one to another. Just make sure you are using the right rating if you intend to get a tax credit.
Credits for 2011
Please note: there is a limit of $500 per taxpayer for all energy related credits in 2011 – if you take multiple credits, keep this maximum in mind. Lifetime limits are $1,500 under this legislation (includes credits for past years)6.
Rebates are different than credits. A Federal tax credit comes off your tax liability – if you have no taxes owed, you won’t get anything. A rebate, on the other hand, is money refunded off the purchase price by the manufacturer or by a local utility company. Rebates come and go and you will have to ask your local HVAC company or utility provider about any current rebates7.
Central Air Systems – Two different qualifications, which depend on whether it is a split (condenser and compressor outside, cooling coils and fan inside) or a package system (everything outside)8.
Split – SEER of 16 or more, EER of at least 13. Package system – SEER 14; EER 12. For either of these, the credit is up to $300.
Electric heat pumps – $300 max credit. Split SEER 15, EER 12.5; Package systems SEER 14; EER 12.
Window Units – no credits available.
Furnace Fan/Central Air Fan – Even without upgrading the cooling/heating unit, a high efficiency fan can qualify for a $50 credit. There is no SEER or EER rating for fans. To qualify, the unit has to use less than 2% of the total energy of the system as a whole. This usually requires a calculation by an HVAC technician.
Furnace or Boiler – These do not use SEER or EER either. They are ranked with Annual Fuel Utilization Efficiency (AFUE) instead9. AFUE measures how much heat is used versus how much escapes up the chimney. Credit can be up to $150.
Furnaces – Gas, AFUE at least 95; Oil furnace AFUE 90.
Boilers – Gas or oil, AFUE at least 90.
How to take the credit
The IRS uses form 5695, the Residential Energy Credits form10. The form is straightforward, but you should be aware that any rebates you receive from the manufacturer or your utility company (or your State) must be deducted before claiming this credit.
For businesses, the situation is in flux. The IRS has issued interim guidance for builders and business property that has energy efficient heating and cooling11. Because of the high dollar amounts involved, it is probably wise to consult your tax professional as well as your HVAC contractor.