Key Points
- Tax credits provide a dollar-for-dollar reduction in what you owe on federal taxes
- The Inflation Reduction Act allows credits for qualifying HVAC systems through 2032
- Heat pumps qualify for up to $2,000, while ACs, furnaces, and boilers qualify for up to $600
- The maximum total claim is $3,200 per year, with some credits carrying forward
- IRS Form 5695 is required to claim any HVAC-related tax credit
Choosing a new heating or cooling system involves more than comfort and performance. Whether a system qualifies for a federal tax credit can meaningfully affect the total cost of an upgrade, which makes understanding these programs worth the time before you buy.
Here’s how HVAC tax credits actually work, and what qualifies under current federal guidelines.
How Tax Credits Work
A tax credit reduces your federal tax liability dollar for dollar. If you install a system that qualifies for an $1,800 credit and owe $2,000 in federal taxes, your liability drops to $200. If your tax liability is lower than the credit itself, though, you may not receive the full benefit in that same tax year.
This distinction matters when planning a purchase, since the credit only offsets taxes you actually owe rather than functioning as a guaranteed refund.
The Inflation Reduction Act and What Qualifies
The Inflation Reduction Act of 2022 allows homeowners to claim a credit for a portion of a qualifying HVAC system’s cost through 2032. To qualify, the system must be ENERGY STAR certified and meet or exceed the efficiency standards set by the Consortium for Energy Efficiency.
Four system types currently qualify:
- Air-source heat pumps: ENERGY STAR Cold Climate certified with a SEER rating above 10, up to $2,000
- Central air conditioners: SEER2 rating of at least 16, up to $600
- Gas or oil furnaces: Gas units need an AFUE rating of at least 97%, oil units need at least 20% renewable fuel blend, up to $600
- Boilers: Gas and propane units need an AFUE rating above 95%, oil units need at least 20% renewable fuel blend, up to $600
Homeowners in colder climates, including Minnesota, should pay close attention to the cold-climate heat pump requirement, since standard heat pump models may not qualify.
How Much You Can Actually Deduct
In general, homeowners can deduct up to 30% of total system cost, including labor, up to the maximum set for that equipment type. These limits apply per year, which means additional credits can be claimed in future years for other qualifying upgrades, such as replacing a furnace one year and a heat pump the next.
The maximum total claim across all qualifying equipment is $3,200 per year. If your credit exceeds your tax liability, the excess can carry over to the following year, though it won’t be issued as a refund. For example, a $3,000 credit against a $1,000 tax liability means $1,000 applies immediately, with the remaining $2,000 carried forward rather than paid out directly.
Filing for the Credit
Claiming an HVAC tax credit requires completing IRS Form 5695 and submitting it with your federal tax return. This form calculates your credit amount and confirms it meets IRS requirements.
It’s worth noting that Energy Efficiency Home Improvement credits cannot be carried over year to year, while credits claimed under the Residential Clean Energy Credit can be, if not fully used. Because these rules can shift and vary by individual tax situation, consulting a licensed tax professional before filing is the safest approach.
Rebates: A Separate but Related Benefit
Beyond federal tax credits, many homeowners also qualify for rebates through local utilities or state programs when installing an energy-efficient system. Rebate availability varies significantly by location and provider, and ENERGY STAR’s Rebate Finder is a useful starting point for identifying what’s available in your area.
Unlike tax credits, rebates typically require submitting proof of purchase directly to the provider, and they’re most often issued as a utility bill credit rather than a check or direct deposit. Combining an eligible rebate with a federal tax credit can meaningfully lower the net cost of a system upgrade.
Making the Most of Your HVAC Investment
Working in homes across Blaine and the surrounding area, we regularly help homeowners understand which system upgrades qualify for these programs before they commit to a purchase. Pairing the right equipment choice with available credits and rebates can turn a significant investment into a much more manageable one.
If you’re considering a system upgrade, our team can walk you through which options qualify and what documentation you’ll need. Contact our team today to discuss your options.
This article is for informational purposes only and should not be considered tax advice. HVAC tax credits are subject to change based on federal regulations. Homeowners should consult a licensed tax professional or visit the IRS website for current eligibility and filing requirements.
Frequently Asked Questions
Do all new HVAC systems qualify for a tax credit?
No. Only systems meeting specific ENERGY STAR and efficiency standards qualify.
What form do I need to claim an HVAC tax credit?
IRS Form 5695 is required to calculate and claim the credit.
Can I carry over unused tax credits to next year?
It depends on the credit type. Energy Efficiency Home Improvement credits cannot carry over, but Residential Clean Energy credits can.
Are rebates the same as tax credits?
No. Rebates come from utilities or state programs and are usually issued as a bill credit, separate from federal tax credits.
What’s the maximum HVAC tax credit I can claim per year?
The maximum total claim is $3,200 per year across qualifying equipment types.