What is a Federal Energy Tax Credit?

Save on your HVAC system with information about tax credits, like those within the Inflation Reduction Act, and rebate programs.

What is the Inflation Reduction Act?

In August 2022, the Inflation Reduction Act (IRA) was signed and provided guidance for climate and energy programs to be expanded and created. Homeowners are incentivized to purchase qualifying, energy-efficient HVAC equipment through various programs within the Inflation Reduction Act.

  • For eligible equipment installed prior to Dec. 31, 2022: The Inflation Reduction Act extends the Internal Revenue Code Section 25C, also known as the Non-Business Energy Property Tax Credit. The extension allows eligible homeowners with qualifying equipment installed prior to Dec. 31, 2022, to claim a tax credit between $50 and $300, or in some cases, 10% of the installed costs (up to $500 maximum).
  • For eligible equipment installed after Jan. 1, 2023: The Inflation Reduction Act expands the 25C tax credit starting Jan. 1, 2023 through 2032 to offer higher incentives and annual (not lifetime) limits to eligible homeowners. Homeowners who meet the requirements may be eligible to claim up to 30% of installation costs, with a cap of $1,200 per year (up to $600 each for qualified air conditioners and furnaces). There is also a separate yearly limit of up to $2,000 for qualified heat pumps, which means a homeowner could potentially claim as much as $3,200 in credits in a year.

Please note: Specific information regarding the qualified systems and how to claim Home Improvement Tax Credits for 2023 and beyond is forthcoming pending the release of application instruction from the IRS.

How do I Apply for a 2022 Nonbusiness Energy Property Tax Credit (25C)?

For qualified HVAC improvements installed prior to Dec. 31, 2022, homeowners may be able to claim 25C tax credit equal to 10 percent of the installed costs (up to $500 maximum). The extended tax credit is in effect for all qualifying systems and products installed during the 2018 through 2022 calendar years and expires on December 31, 2022. Subject to IRS regulations, tax credits apply as a direct reduction of taxes owed.

The IRS has directed taxpayers to use Form 5695 to calculate and file for their residential energy credits. Customers should consult with a tax professional to fully understand how the tax credits may apply to you, what you can do to obtain one, and for advice on tax preparation.

Note: The process described above is for the filing process for equipment installed prior to December 31st 2022. The IRS has not yet defined the process for 2023. Check back for updates.

What are Rebate Programs?

In addition to tax credits, rebate programs related to energy efficiency are another way homeowners might be able to save on their HVAC systems. As of December 2022, the energy efficiency rebate programs outlined in the Inflation Reduction Act are still awaiting guidance from the Department of Energy. Once the guidance is received, the rebate programs will be administered through the state energy offices.

Rebate programs vary by state and income. To learn more about rebate programs you might qualify for, talk to a representative from your state’s energy office.

What Ameristar Residential Products Qualify for a Tax Credit?

The following Ameristar residential products qualify for a tax credit:
*Note: The 2023 application process is not yet available from the IRS. Check back for updates and certificates, if applicable

  • Legacy split system air conditioner/heat pump — must meet both 25C requirements of 16 SEER/13 EER to qualify for a tax credit.
  • Split outdoor system air conditioner/heat pump — must meet all three 25C requirements of 15 SEER/12.5 EER/8.5 HSPF to qualify for a tax credit.
  • Gas furnace — must meet 25C requirement of 95% AFUE to qualify for a tax credit.
  • Legacy gas furnace — must meet 25C requirement of 95% AFUE to qualify for a tax credit.
  • Advanced main air circulating fan — must meet 25C requirement of utilizing no more than 2% of total furnace energy to qualify for a tax credit.

To learn more about qualifying products and government energy efficiency standards, visit the Federal Tax Credit page on the Energy Star website.