HVAC Specific 2023 Energy Efficiency Tax Credits Explained

Making energy-efficient home improvements can be daunting and nerve-wracking for many people. Few enjoy spending hundreds, if not thousands, of dollars on appliances like air conditioners and heaters. But, thanks to the newly introduced federal income tax credits, managing the costs of achieving an energy-efficient home has become easier. Read on to learn how to benefit from the Inflation Reduction Act of 2022.

Understanding the Tax Credits from the Inflation Reduction Act of 2022

Many people are struggling with the current inflation and the rising food, gas, and energy costs. As a response to this problem, the U.S. Government adopted the Inflation Reduction Act of 2022. This law is an attempt to slow down the rate of inflation and provide a bit of relief to taxpayers. As part of this new law, taxpayers can claim a series of credits and deductions on their taxes when they upgrade to energy-efficient cars, air conditioners, heaters, and other products. In the following section, we will discuss some of the HVAC-specific credits and rebates available to homeowners nationwide.

Residential Property Tax Credit: Tax Section 25C

Most homeowners will be relieved to learn about the residential property credit, Tax Section 25C. This credit provides equal to 30% of installation costs when homeowners choose an HVAC product they install that meets the requirements for high-efficiency tier, ENERGY STAR certified metrics. Dream Team does business in Louisiana, so we will inform you of the requirements you need to meet when living in the southern part of the United States.

Heat Pumps

Heat pump installations can qualify for a $2,000 tax credit from the Internal Revenue Service. These home improvements are eligible expenses for tax deductions if they meet the following criteria:

Split Ducted Heat Pump: SEER2 ≥15.2, EER2 ≥11.7, HSPF 2 ≥ 7.8
Non-Ducted Heat Pump: SEER2 ≥16, EER2 ≥12, HSPF 2 ≥ 9
Packaged Heat Pump: SEER2 ≥15.2, EER2 ≥10.6, HSPF 2 ≥ 7.2

Furnaces

A $600 residential clean energy credit is available in the 2023 tax year for the purchase of gas-fired forced air furnaces rated at 97% AFUE.

Tax Credits for Air Conditioners

There are also federal tax credits available for air conditioning units. Your taxable income can qualify for a $600 income tax credit, your new AC systems must be qualifying home improvements under the following criteria:

Split Air Conditioning in a qualifying property
- Nationally: SEER 2 ≥16, EER2 ≥12,
Packaged Air Conditioning
- Nationally: SEER 2 ≥15.2, EER2 ≥11.5

Residential Energy Efficient Property: Tax Section 25D

Homeowners can also take advantage of a 30% tax refund for their installation costs when they install an ENERGY STAR certified geothermal heat pump. Heat pumps use renewable energy, and any related expenses to have these systems installed can be offset by a residential clean energy credit.

High-Efficiency Electric Home Rebate Program (HEEHRP)

As part of the Inflation Reduction Act of 2022, homeowners can also take advantage of receiving income-based rebates on certain qualifying home improvements. This rebate program offers 100% and 50% rebates, depending on your eligibility:

There is a 100% rebate available to households earning 80% of the local median gross income.
A 50% rebate is available to households earning between 80% and 150% of the local median income.

Those earning more than 150% of the local median gross income do not qualify for this rebate program. With the Inflation Reduction Act, the installation, energy, and cost savings make energy-efficient home improvements more affordable and attractive for taxpayers.