When you own a home, there is a good chance that you will be able to get some money deducted when you pay your taxes. Typically, tax deductions result from upgrades to the home that make it more energy-efficient. With any home improvement upgrades, you need to claim them on your taxes in the year that the work occurs. In this guide, we will look at whether your heater or AC system replacement qualifies for a tax deduction.
Rebate vs. Tax Deductible
To start, we don’t want any confusion between a rebate and a tax deduction. A rebate is an instant discount or cashback from a manufacturer or utility company, while a tax deduction reduces taxable income, thereby lowering overall tax liability when filing taxes.
HVAC Repairs vs. HVAC Upgrades
HVAC repairs and HVAC upgrades are not the same thing. A repair is when the unit does not work correctly, and the HVAC company restores it to its previous level of operation. If you don’t make any improvements to the system, the repairs do not qualify for a tax deduction.
An upgrade enhances the overall quality of your HVAC system, benefiting your family or tenants. This can include any aspect of the HVAC system, such as air conditioners, furnaces, ductless mini-split units, duct insulation, and heat pumps. If you plan to sell the home, be sure to keep records of the upgrades made to the HVAC system, as they can provide you with tax benefits during the sale of the property.
HVAC Requirements to Qualify for a Tax Deduction
If you are trying to meet the requirements to qualify for a tax deduction on your HVAC system, it is important that you get a heating and cooling system that is ENERGY STAR certified. It must also meet the highest level of energy efficiency required by the Consortium for Energy Efficiency (CEE). As of January 1, 2025, an HVAC system with a mini-split unit must have a SEER2 rating higher than the highest efficiency tier in effect at that time.
What Tax Deductions Are Available
Owning an HVAC system incurs some higher costs, but two tax deductions were established during the Biden administration under the Inflation Reduction Act, which reduces expenses. These tax rebates apply until 2032 and provide useful savings for most residential households. Here’s a breakdown of the two available levels.
The $1,200 Federal Tax Credit
This deduction is available on an annual basis from January 1, 2023, to December 31, 2032. It is also available if you install eligible energy efficiency improvements in your home.
The components included in this are:
- Water heaters
- Insulation installation
- Furnaces
- HVAC boilers
- Central air conditioners
When you install a government-approved HVAC upgrade, you will be eligible for a tax credit with an annual cap of $1,200. This maximum provides owners with savings of up to 30%, but all home improvements must be energy-efficient. It is important to understand that the final $1,200 is the sum of all upgrades, so installing multiple systems will not increase the value of the tax credit.
The $2,000 Deduction
To achieve a higher return on your investment, the federal government has also introduced another tax credit that offers HVAC users a $2,000 tax credit.
This credit provides a rebate for households that have high-energy efficiency systems with the following components:
- Heat pumps
- Air-source heat pumps
- Biomass stoves
- Biomass boilers
This $2,000 tax credit can be combined with the $1,200 tax credit, so upgrading your heating system or AC can provide a reasonable return on investment come tax season. This combined $3,200 credit far eclipses the previous HVAC tax credit, which provided a rebate of $500 that was only available once during the lifetime of your HVAC upgrades.
Contact Honey's Air & Solar to Upgrade
At Honey's Air & Solar, we want to ensure you get the most out of your upgrades. When we upgrade your air conditioner and heating system, we will provide you with information about tax incentives that will help you save money. We also install air purification systems, solar panels, and smart thermostats to ensure your family’s comfort all year round. We have been servicing the residents of Modesto, CA since 2009, and the community is important to our values.
Your satisfaction and comfort are our top priorities. For all your heating and cooling needs, contact us today at Honey's Air & Solar to schedule an appointment.
