Frequently Asked Questions on the 2009 and 2010 Federal Tax Credits for Energy Efficient Residential HVAC Equipment

What are the qualifying criteria for residential equipment to get these tax credits?

1. A natural gas, propane, or oil furnace rated at 95.0% AFUE or higher.
2. Any furnace equipped with an advanced main air circulating fan that uses no more than 2% of the total furnace total energy use.
3. A central air conditioner that achieves the highest efficiency tier established by the Consortium for Energy Efficiency as in effect on January 1, 2009 (which is 16 SEER or higher, 13 EER or higher rating). Previously, the criteria were 15 SEER, 12.5 EER which is no longer valid.

What’s the difference between a tax credit and a tax deduction?

A tax credit applies directly against the taxpayers’ liability. A tax deduction applies against a taxpayer’s income, lowering the adjusted gross income and possibly moving the taxpayer to a lower tax bracket. Tax credits have a greater benefit to a taxpayer than a tax deduction.

Can a homeowner claim $1500 in tax credits for improvements made in 2009, and then again claim tax credits for more improvements made in 2010?

No, taxpayers are eligible for a total of $1500 in tax credits for improvements made over the combined two year period.

Does the tax credit apply to the cost of the equipment or equipment plus labor?

The tax credit applies to the installed cost of the equipment that qualifies for the tax credits, which includes labor for that specific installation.

Can a homeowner use the $1500 tax credit towards a single appliance installation?

Yes, since the per appliance caps have been removed by this new legislation, a homeowner may use the entire $1500 in tax credits for installing a single qualified appliance, such as a furnace, air conditioner, heat pump, etc. up to 30% of the installed cost of that one appliance.

What happens if the 30% of the installed cost is less than the $1500 limit?

The homeowner can “bank” the remaining amount of the available tax credit towards the cost of other qualified improvements during the two year period. Any single item that the installed cost is more than $5000 will instantly reach the $1500 limit.

Can a homeowner claim credits for improvements to a second home, such as a vacation home?

No, the tax credit program is only available for improvements made to the taxpayer’s primary residence or home, and may not be used for second or vacation homes.

Can a small business that operates out of a townhouse and installs residential equipment in a commercial setting claim the credit?

No. The tax credit may only be claimed by taxpayers on their personal income taxes for improvements to their primary residence.

What other types of energy efficiency improvements qualify for the tax credits?

Homeowners may be able to qualify for the tax credits if they make qualified improvements to windows and doors including skylights, storm windows and storm doors; roofing including metal and asphalt roofs; and insulation. All of these improvements qualify, but homeowner may only claim $1500 in total for any improvements. The exception to this is for geothermal heat pump applications and installations, where there is no limit on the tax credit amount.

How do homeowners claim the tax credits and receive their money?

Before filling for tax credits on any listed models, it is always recommended that homeowners/consumers consult with a tax professional to review the provisions of the “American Recovery and Revitalization Act of 2009” (ARRA). Taxpayers should keep copies of invoices and receipts to document their actual expenditures, but only need to file Form 5695 with their tax returns to get the tax credits.

Should a contractor promise a homeowner that they will qualify for the tax credit?

No, as each taxpayer’s situation may be different. The contractor may not know if the taxpayer has already made other improvements that qualify, or if their tax situation will change by the end of the tax year. But to be safe, the contractor can always say "by installing qualified equipment, the taxpayer may be qualified to claim of 30% of the installed costs (up to a $1,500 limit) in tax credits." And the contractor should always advise the homeowner to refer to the applicable IRS forms and regulations.

What if a homeowner/taxpayer had already completed energy improvements under the provisions of the “Emergency Economic Stabilization Act of 2008” for 2009 that no longer qualify for tax credits under this new bill?

The “American Recovery and Revitalization Act of 2009” replaces all of the provisions of the previous tax incentives for these products. Refer to the appropriate IRS rules, regulations, and information on this topic.

Additional Resources:

This document was prepared using information from a number of sources, including the following websites. Additional information may be found at:

ACEEE (American Council for an Energy-Efficient Economy) http://aceee.org/energy/national/taxkey.htm/

Air Conditioning Contractor of America (ACCA) http://www.acca.org/press/news.php?id=215

AHRI (Air Conditioning, Heating, and Refrigeration Institute) http://www.ahrinet.org/Pages/ShowMeMore.aspx?src=single&lpk=741/

CEE (Consortium for Energy Efficiency) http://www.ceehvacdirectory.org/

Energy Star http://www.energystar.gov/index.cfm?c=products.prtaxcredits#s9/

GAMA (Gas Appliance Manufacturers Association) http://www.gamanet.org/gama/inforesources.nsf/vContentEntries/Product+Directories? OpenDocument/

Heating, Air conditioning and Refrigeration Distributors International (HARDI) http://www.hardinet.org/