Federal Tax Credits for Air Conditioners and Heat Pumps Under the Inflation Reduction Act [2023]
When you upgrade to a more energy efficient air conditioner or heat pump, not only can you lower your energy bill, but you can also save some cash come tax season.
On January 1, 2023, new federal tax credit provisions under the Inflation Reduction Act came into effect. These new tax credits help reduce the cost of certain energy efficient improvements to homes and businesses—including air conditioners, heat pumps, and other home appliances and upgrades.
The requirements for the new tax credits are more complex than credits available in previous years. However, you also have the potential to reap more savings under the new credits. The energy efficiency tax credits are available January 1, 2023-December 31, 2032. (Looking for tax credit information from 2022 and earlier?)
What Tax Credits are Available?
You can receive $3,200 annually in federal tax credits for eligible energy efficient home upgrades, up to 30% of the cost.
The following types of equipment and improvements (within certain specifications) are eligible:
- Air Source Heat Pumps
- Air conditioners
- Furnaces
- Heat pump water heaters
- Insulation
- Doors and windows
- Electrical panel upgrades
- Home energy audits
- And more
Annual Aggregate Limits
While the total limit for an energy efficiency tax credit in one year is $3,200, aggregate limits also apply. The amount breaks down into two categories:
- A maximum of $2,000 may be applied to any combination of air source heat pump, heat pump water heater, and biomass stove/boiler upgrades in one year.
- A maximum $1,200 can be applied to any combination of improvements to the home envelope (windows, doors, skylights, insulation, electrical) plus central air conditioners, furnaces, and boilers.
There are also maximum tax credit amounts you can receive per appliance or improvement. Below, you’ll find more details about the federal tax credits available for air conditioners and heat pumps.
Because of the aggregate limits, spreading your home energy efficiency upgrades over a few years with allow you to maximize your savings.
GeoThermal heat pumps and other renewable energy equipment are also eligible for a separate tax credit. These upgrades do not count against the $3,200 annual limit.
What Federal Tax Credits are Available for Air Conditioners and Air Source Heat Pumps?
Air Conditioners
- You can claim: 30% of the project cost, up to a $600 maximum limit.
- Split Systems must have a SEER2* (Seasonal Energy Efficiency Ratio 2) of greater than or equal to 16.
- Packaged Systems must have a SEER2 of greater than or equal to 15.2, and an EER2* of greater than or equal to 11.5 (including gas/electric packaged units).
- All air conditioners must be ENERGY STAR certified**.
- The air conditioning system must be purchased and installed between January 1, 2023, and December 31, 2032.
Air Source Heat Pumps
- You can claim: 30% of the project cost, up to a $2,000 maximum limit.
- Ducted Split Systems must have an HSPF2* (Heating Seasonal Performance Factor 2) of at least 7.8, an EER2 (Energy Efficiency Ratio 2) of at least 11.7, and a SEER2 (Seasonal Energy Efficiency Ratio 2) of at least 15.2.
- Packaged Systems must have a SEER2 of at least 15.2, HSPF2 of at least 7.2, and an EER2 of at least 10.6 (including gas/electric packaged units).
- Mini-Split (a.k.a. Ductless or Non-Ducted) Systems must have a SEER2 of at least 16, EER2 of at least 12 and HSPF2 of at least 9.
- All heat pumps must have earned the ENERGY STAR label.
- Heat pump models with the ENERGY STAR Cold Climate** designation must meet the following requirements:
- Ducted systems (split and packaged) must have at least EER2 10 and HSPF2 8.1.
- Mini-split systems must have at least SEER2 16, EER 9, and HSPF 9.5.
- The heat pump system must be purchased and installed between January 1, 2023, and December 31, 2032.
Are you unsure of whether your new air conditioner or heat pump qualifies for the tax credit? Ask your Symbiont Service HVAC installer. We may also be able to provide you with a Manufacturer Certification Statement.
Does My Home Qualify?
The tax credit is for energy efficiency improvements to residential properties only, with some restrictions as follows:
- The property must be your principal residence (not a vacation home, second home, commercial property, etc.). Your principal residence is where you live most of the time. It could be a:
- House
- Houseboat
- Mobile home
- Cooperative apartment
- Condominium
- Manufactured home
- It must be an existing home, not new construction.
- You must own the property. Rental properties do not apply.
- The property must be in the United States.
What About Tax Credits for Air Conditioners or Heat Pumps Purchased in 2022 or Earlier?
The Non-Business Energy Property Tax Credits were also extended through the end of 2022 under the Inflation Reduction Act. If you purchased an air conditioner or heat pump in 2022 or before, you may qualify for a tax credit under this extension. Read more about the 2022 tax credits.
Are There Tax Credits for Homebuilders and Commercial Properties?
If you are a home builder or a commercial building owner/designer, you may be eligible for separate tax credits. Read more at the links below:
What are the Renewable Energy Tax Credits for GeoThermal HVAC Systems?
Tax credits for renewable energy upgrades, including GeoThermal heat pumps, were also extended and modified under the Inflation Reduction Act. Learn more about the tax credit for GeoThermal AC systems.
Because they qualify for a separate tax credit, GeoThermal systems and other renewable energy upgrades do not count toward the $3,200 annual limit under the energy efficient tax credits.
How Do I Apply for the Tax Credits?
To claim the tax credits, you will need to fill out a specific IRS form and file it with your tax returns. The 2023 form has not been released yet.
Please also note that you can only claim these tax credits if you owe tax. If you do not owe tax, you will not receive the tax credit as a refund. Tax credits are administered by the IRS. For questions about how to apply, please contact the IRS or a tax professional.
DISCLAIMER: The tax credit information contained within this website is provided for informational purposes only and we do not guarantee the accuracy of the information provided. It is not intended to substitute for expert advice from a professional tax/financial planner or the Internal Revenue Service (IRS). Symbiont Service Corp always recommends you talk to your accountant or other tax professional. For the most up-to-date information on federal tax credits, please visit energystar.gov.
*SEER2, HSPF2, and EER2 replaced SEER, HSPF, and EER as the standard rating system for HVAC system energy efficiency on January 1, 2023, following the introduction of new testing procedures. For more information, visit: https://seer2.com
**Note from ENERGY STAR: 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.”
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