A Guide to the Inflation Reduction Act 2023 Federal Tax Credits

As part of the 2022 Inflation Reduction Act, the US federal government established new tax credits designed to encourage homeowners to improve their house’s energy efficiency. This new tax credit program went into effect on January 1, 2023, and will run until the end of 2032, and it allows you to earn a tax credit of up to $3,200 per year for installing new high-efficiency HVAC units and heat pump water heaters. You can also earn a tax credit for making certain improvements that boost your home’s energy efficiency. Here is everything you need to know about this new tax credit program and what type of equipment and upgrades qualify.

Which HVAC and Plumbing Equipment Qualifies for the Tax Credits?

The Inflation Reduction Act established the Energy Efficient Home Improvement Tax Credit program. As part of this program, you can earn a credit worth up to $600 each ($1,200 total) for installing a new furnace or central air conditioner. Homeowners that have a new heat pump or heat pump water heater installed can also earn a credit worth up to $2,000 per year. However, all of these tax credits are capped at a maximum of 30% of the purchase and installation cost, and you can only claim up to $3,200 in a single year.

All new heat pump water heaters qualify under the new tax credit program, but there are certain energy efficiency requirements in order for new furnaces, air conditioners and heat pumps to qualify. The main requirements are that the unit must be ENERGY STAR-certified and be in the highest efficiency tier as set out by the Consortium for Energy Efficiency. This means that a gas furnace must have a minimum AFUE (Annual Fuel Utilization Efficiency) of 97%. Central air conditioners need to be at least 16 SEER2 (Seasonal Energy Performance Ration), and heat pumps need to be at least 17 SEER2 and 10 HSPF2 (Heating Seasonal Performance Factor).

It is important to note that these are only the energy efficiency requirements for 2023. The Consortium for Energy Efficiency updates its efficiency tiers every year, which means that the requirements to qualify under this tax credit program will most likely increase in the coming years.

Tax Credits for Improving Your Home’s Energy Efficiency

The Energy Efficient Home Improvement Tax Credit program also allows you to earn a credit of up to $1,200 for improving your home’s energy efficiency. However, these credits are lumped in with the credit you can earn for installing a new furnace or central AC unit, which means you can still only claim up to $1,200 in total.

Under this part of the program, you can qualify for a tax credit for installing new ENERGY STAR exterior doors and windows. For doors, you can get 30% of the cost for each door, up to $250 per door and up to $500 in total. Windows and doors are eligible for 30% of the cost up to a maximum of $600 per year.

You can also earn 30% of the total cost of up to $1,200 for insulation and air-sealing materials as long as they meet the requirements set out by the International Energy Conservation Code. Home energy audits also qualify for a 30% tax credit of the cost of the audit worth up to $150 per year.

Certain electrical upgrades, like installing a new main electrical panel, subpanel, or branch circuits, can also qualify for a credit worth up to $600 a year. However, the new panel or circuit must be a minimum of 200 amps, and all installations must meet the National Electric Code.

Retroactive Energy Efficiency Tax Credits

The Energy Efficient Home Improvement Tax Credit program also established a retroactive tax credit. If you had any work performed in 2022 that would qualify under the new tax credit program, you are eligible to claim a retroactive credit of up to $500 when you file your 2022 taxes. This credit program includes all of the items we’ve already mentioned, such as installing a qualifying HVAC unit, improving your home’s energy efficiency, or having a home energy audit performed. While this retroactive credit isn’t nearly as large as the new credits, you can still get a few hundred dollars back.

If you’re looking to improve your home’s energy efficiency and qualify for these new tax credits, All Temp Co., Inc Air Conditioning, Heating, Plumbing, & Electrical is here to help. We install a range of ENERGY STAR-rated furnace units, air conditioners, and heat pumps that all will qualify for a tax credit, and we can assist if you need a home energy audit as well. Our team also specializes in a range of plumbing services as well as residential and commercial heating and cooling services. Call All Temp today if you have any questions about the new tax credit program or to schedule any plumbing or HVAC service in the Charlotte and Concord areas.