Federal Tax Credits for New HVAC Systems

How to Claim the Energy Efficient Home Improvement Credit

File Form 5695, Residential Energy Credits Part II, with your tax return to claim the credit. You must claim the credit for the tax year when the property is installed, not merely purchased.

Taxpayers can claim the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit for the year the qualifying expenditures are made.

Homeowners who improve their primary residence will find the most opportunities to claim a credit for qualifying expenses. 

Renters may also be able to claim credits, as well as owners of second homes used as residences.

Landlords cannot claim this credit.

• Read all the details on the Energy Efficient Home Improvement Credit page.

We encourage homeowners to review all requirements and qualifications at IRS.gov/homeenergy for energy efficient equipment prior to purchasing. Additional information is also available on energy.gov, which compares the credit amounts for tax year 2022 and tax year 2023.

The tax credits for energy-efficient home improvements are financial incentives provided by the Internal Revenue Service (IRS) to homeowners who make energy-efficient upgrades to their homes. These credits are designed to offset the costs of these upgrades and encourage homeowners to make energy-efficient choices.

The amount you can save with tax credits and rebates depends on the specific upgrades you make to your home and the incentives available in your area. Generally, tax credits and rebates can range from a few hundred to several thousand dollars.

Principal Residence Owners can use Federal Income Tax credits.

Upgrades must be to an existing home & your principal residence. New construction and rentals do not apply.

A principal residence is the home where you live most of the time. The home must be in the United States. It can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home. 

Upgrades that qualify for tax credits and rebates typically include energy-efficient appliances, HVAC systems, insulation, roofing, and windows. The upgrades must meet specific energy efficiency standards to qualify for these incentives.

New federal income tax credits are available through 2032 providing up to $3,200 annually to lower the cost of energy efficient home upgrades by up to 30 percent. Improvements such as installing heat pumps, heat pump water heaters, insulation, doors and windows, as well as electrical panel upgrades, home energy audits and more, are covered by the tax credits and can help families save money on their monthly energy bills for years to come. 

In addition to the energy efficiency credits, homeowners can also take advantage of the modified and extended Residential Clean Energy credit, which provides a 30 percent income tax credit for clean energy equipment, such as rooftop solar, wind energy, geothermal heat pumps and battery storage through 2032, stepping down to 22 percent for 2033 and 2034. 

Visit the Energy Star website for up-to-date details.

You must file Form 5695 with your tax return to claim eligible tax credits for energy-efficient home improvements. You can also use the form to calculate your claim amount.

You can claim: 

• 30% of project cost
• $600 maximum amount credited

Yes, there are income limitations. The IRS may reduce or eliminate your credit if your income exceeds certain thresholds. For example, the residential energy property credit is limited to $500 for all tax years after 2005.

ENERGY STAR certified natural gas furnaces with AFUE > 97% are eligible.

American Standard offers four distinctive furnace series:

• American Standard 92 and Silver Series: These budget-friendly furnaces boast 90+ efficiency ratings and are constructed with a multi-speed blower.
• American Standard Gold Series: These mid-range furnaces feature higher AFUE ratings and have a two-stage gas valve.
• American Standard Platinum Series: These furnaces offer American Standard’s highest efficiency levels, most innovative features, and best AFUE ratings.
• American Standard also offers electric heat pumps and packaged units, which include oil and gas furnaces.

Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”  The eligibility described above is consistent with this requirement.

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits.  

The overall total limit for an efficiency tax credit in one year is $3,200. This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners.  

Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

Given the way the annual aggregate limits are structured, it may be prudent to spread your improvements over a few years.  

•  If your heating or cooling system is old, and you are considering a new air source heat pump, it is always wise to optimize your attic insulation first, so you don’t pay for more heating and cooling than you actually need.  
• Making these upgrades together in one year would allow you a tax credit of up to $1,200 for the insulation and up to $2,000 for the heat pump. Similarly, you could combine a heat pump installation with window/door replacements.  
• In that scenario, the $2,000 credit for the heat pump could be combined with tax credits up to $600 total for the windows/skylights plus $500 for two or more doors. 
• If you replace your water heater the following year, you would be eligible for another 30% tax credit, up to $2,000 plus up to $600 if you need an electric panel upgrade to accommodate the new water heater.

Your furnace’s UFAE rating is its Annual Fuel Utilization Efficiency.

• AFUE measures a gas furnace's efficiency in converting fuel to energy. A furnace that has an 80 percent AFUE rating can turn 80 percent of the energy it consumes into heat. The other 20 percent is used, or lost, during the heating process.
• High efficiency furnaces have a UFAE of 95% or higher.
• A higher AFUE rating means greater energy efficiency and savings for you. 
• The minimum standard AFUE for new furnaces is 78 percent. 
• A mid-efficiency furnace typically has an AFUE rating between 80 and 85%.
• A high-efficiency furnace has an UFAE rating between 90 and 97 percent.

ENERGY STAR is program developed by the Environmental Protection Agency (EPA) in order to reduce the nation's energy consumption.

ENERGY STAR® -qualified heating equipment can be up to 15 percent more efficient than standard models. ENERGY STAR® -qualified cooling equipment can be up to 7 percent more efficient than minimum-standard equipment.

The federal tax credits for energy efficiency were extended as part of the Inflation Reduction Act of 2022. So, if you made any qualifying home improvements to your primary residence after December 31, 2021, you may be eligible to claim them on your taxes when you file for 2022.

Tax credits and rebates are both financial incentives provided to homeowners who make energy-efficient home upgrades. The main difference is that tax credits are applied to your tax liability, while rebates are paid directly to you.