How to Claim the Energy Efficient AC Unit Tax Credit
Navigate the process for claiming the federal tax credit for an energy-efficient AC. This guide clarifies the requirements for homeowners to file successfully.
The federal government provides tax incentives for homeowners who invest in energy-efficient home upgrades, including central air conditioning systems. This financial benefit, known as the Energy Efficient Home Improvement Credit, was significantly expanded by the Inflation Reduction Act of 2022. The credit is designed to lower the financial barrier for installing systems that reduce energy consumption.
Taxpayer and Property Eligibility
To qualify for the credit, the property where the air conditioning unit is installed must be your principal residence. A principal residence is the home you live in for most of the year. The property must be an existing home that you are improving, not a newly constructed home.
The home must be located in the United States. Vacation homes or properties that you rent out to others are not eligible for this tax credit. The credit is available to homeowners, and in some cases renters, as long as they paid for the qualifying improvement. The focus on residential use means any use of the home for business purposes could impact eligibility.
Qualifying Air Conditioning Equipment
Only specific types of air conditioning systems are eligible for the tax credit. The credit applies to central air conditioners, which can be either split systems or packaged systems. A split system has components both inside and outside the home, while a packaged system contains all major components in a single outdoor cabinet.
To be eligible, equipment must meet or exceed the requirements of the highest efficiency tier set by the Consortium for Energy Efficiency (CEE) that is in effect at the start of the year of installation. For equipment placed in service in 2025, a split system must have a Seasonal Energy Efficiency Ratio 2 (SEER2) of 17.0 or higher and an Energy Efficiency Ratio 2 (EER2) of 12.0 or higher. A packaged system must have a SEER2 of 16.0 or higher and an EER2 of 11.5 or higher.
To confirm if a specific air conditioner model qualifies, you should use the AHRI Directory of Certified Product Performance or the CEE Directory of Efficient Equipment. While the ENERGY STAR label can be a helpful guide, the CEE highest efficiency tier is the definitive standard.
Calculating the Credit Amount
The Energy Efficient Home Improvement Credit is calculated as 30% of the total project cost. This includes the cost of the qualifying air conditioning unit itself as well as any labor costs associated with its installation. For central air conditioners, the maximum credit you can claim is capped at $600 for the year the equipment is placed in service.
This $600 limit is part of a broader $1,200 annual cap for all eligible energy-efficient home improvements. If you also claim credits for other upgrades like new windows or insulation, the total cannot exceed this annual limit. An exception exists for heat pumps, which have a higher separate limit.
The credit is nonrefundable, which means it can reduce your tax liability to zero, but you will not receive any of it back as a refund. Any excess credit cannot be carried over to a future tax year. The annual limits reset each year, allowing you to plan projects over several years to maximize savings through 2032.
Information and Forms Needed to File
You will need all purchase invoices and receipts that clearly itemize the costs for both the equipment and its installation. For equipment installed before January 1, 2025, you should obtain and keep a Manufacturer’s Certification Statement for your records. For equipment placed in service on or after January 1, 2025, you will need the product’s unique Product Identification Number (PIN) to include on your tax return. The equipment must also be produced by a manufacturer who has registered with the IRS.
The credit is calculated and reported on IRS Form 5695, Residential Energy Credits. You will use the cost information from your receipts to complete Part II of this form.
How to Claim the Credit on Your Tax Return
After calculating the credit on Form 5695, attach the completed form to your Form 1040. The credit is claimed for the tax year in which the air conditioner was installed, not necessarily when it was purchased.
The total credit amount from Form 5695 is transferred to Schedule 3 (Form 1040), Additional Credits and Payments. The amount from Schedule 3 ultimately flows to your main Form 1040, where it directly reduces your total tax liability for the year.