Blog Post: HVAC-related Tax Credits Included in the 2009 Stimulus Package

Charlie McCrudden, ACCA National Director of Government Relations, recently shed some light on what it means for HVAC contractors and their customers, the new law makes important changes to existing tax incentives for homeowners who make qualified improvements of higher efficiency HVAC and water heating equipment to their primary residences.

Residential Tax Credit Details

Larger Tax Credit

For qualified improvements (see spreadsheet), homeowners may be able to claim tax credits equal to 30% of the installed costs (up to $1,500). 

Per-Appliance Caps Removed

Homeowners may use the entire $1,500 tax credit limit on a single qualifying improvement. The previous per-appliance caps that limited the homeowner to just $150 for a high efficiency furnace or $300 for a high efficiency central air conditioner or heat pump have been removed.

Lifetime Limit Removed

Homeowners that previously claimed tax credits in 2006 or 2007 are eligible for the full $1,500 limit.

Frequently Asked Questions about the new Tax Credits

Can the homeowner claim $1500 in tax credits for improvements made in 2009 and again for improvements made in 2010?

No. Taxpayers may only be eligible for a total of $1500 in tax credits for improvements made in the combined two-year period of 2009 and 2010.

Can a homeowner use the entire $1500 limit as a credit toward the installation of one appliance?

Yes. A homeowner may use the entire $1500 in tax credits for installing a single appliance, such as a qualified furnace, air conditioner, heat pump, or hot water heater.  

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

The homeowner can “bank” the remaining available tax credit for other qualified improvements. Any single installation that costs more than $5000 will instantly reach the $1500 limit.

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

The tax credit applies to the installed costs of the qualified equipment, which includes labor.

How will a taxpayer claim the credit and receive their money?

In the past, the IRS has directed taxpayers to use Form 5695, Residential Energy Efficient Property Credit. Taxpayers are not required to file anything more than the form, but are instructed to keep records of their installation.

What is the difference between a tax credit and a tax deduction?

As a tax credit applies 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.

With a tax credit, if the taxpayer owes $2000, in taxes, their liability is reduced to $500. If they owe nothing, they can expect a $1500 refund.

What if the homeowners already claimed $500 in tax credits in 2006 or 2007?

The “lifetime caps” that used to be in place have been removed. Any previous claims do not count against the current $1500 tax credit limit.

Can a homeowner claim the credit for improvements to a second home?

No. The tax credit is only available for improvement to the taxpayer’s primary residence.

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.

Will all  homeowners definitely qualify for the tax credit?

No. Each taxpayer’s situation is different. You 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. However, to be safe, you 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."

I asked Ralph Sheldon with US Air Conditioning his opinion on this subject and he responded:

“Rarely am I in favor of government intruding in our business, but with the economy the way it is I’ll not look a gift horse in the mouth. This new Tax Credit, three times what it was, should help encourage people to replace rather than repair aging equipment. The Tax Credit provides a short-term “benefit”, but the reality is the consumer will reap the benefit for the lifetime of the new higher efficiency equipment. It’s now up to us as an industry to educate the public, and take advantage of the opportunity presented to us.”

ACCA-AZ will be collaborating with local community organizations to educate the public on what tax credits are available to them. ACCA-AZ also has a list of qualified contractors if a homeowner or business owner needs a referral.

ACCA-AZ (Air Conditioning Contractors of America- Arizona Chapter)

10221 N. 32 nd Street

Phoenix , Arizona

602-298-5454

1-866-771-HVAC