Energy-efficient upgrades made to your home in 2022 will continue to benefit you in the upcoming tax season. The federal tax credit for energy-saving ACs and heat pumps can net you a tax credit of $500. That’s good news for Austin homeowners hit by rising costs at every turn.
The tax credit is limited to $500. So, if you’ve claimed it in a previous tax year, you won’t be able to do so in 2022. For clarity, it’s a good idea to consult with your tax professional prior to purchasing new HVAC equipment. They can help you determine if you’re eligible for the program.
What’s the Difference Between a Tax Credit and Tax Deduction?
A tax credit is a dollar-for-dollar return on the money spent on improving your home’s energy efficiency (up to the $500 limit). You don’t have to itemize your taxes to get the money back. Additionally, it’s better than a deduction that merely subtracts the expense from your taxable income.
What Are the Requirements?
Here are the details:
- Equipment Eligible: split AC systems (condenser and coil) and heat pump systems (condenser and air handler)
- Maximum Tax Credit: 10% of the cost up to $350.
- Efficiency Minimum Ratings:
- For split ACs: 16 SEER, 13 EER
- Heat pump: 15 SEER, 12.5 EER and 8.5 HSPF.
- Package units have different requirements. Ask your HVAC technician for details as they apply to your needed equipment.
- Furnace or blower: An additional $50 tax credit for a furnace or blower with a variable speed or ECM motor. Since most systems now meet these requirements, this may increase your total tax credit.
- Insulation: 10% of the insulation installed $500 (excluding labor)
How To Claim the Tax Credit
The IRS has required Form 5695 to calculate the tax credit in previous years. Your tax professional and the IRS website are great sources to confirm the procedure for 2022. Since this credit has come and gone multiple times in the past several years, it’s a good idea to check your past tax returns if you aren’t sure whether to claim it.
Changes That Will Apply for 2023
The current tax credit falls under the Nonbusiness Energy Property Tax Credit. As of January 1, 2023, these credits will fall under the new Energy Efficient Home Improvement Credit.
Under the new rules, the $500 lifetime limit expires. Instead, you’ll be able to claim up to $1,200 every year for eligible upgrades to your home. That isn’t the only massive change in consumers’ favor. Instead of a 10% limit, homeowners can claim 30% of home improvement costs for eligible expenses. These expenses cover home energy audits, biomass stoves and boilers, and electric panels.
Additional increases include tax credits of $250 per exterior door ($500 limit) and $2,000 for heat pump installation if you don’t qualify for the rebate, which is based on income.
As you can see, you can benefit from replacing inefficient heating and cooling systems in 2022 and 2023. For help choosing eligible models, reach out to the friendly pros at McCullough, Austin’s hometown HVAC contractor!