Pellet Stove Tax Credit: How to Claim Yours

Homeowners can reduce their heating costs and receive a tax benefit by installing high-efficiency biomass fuel appliances. A federal tax credit is available for those who purchase and install qualifying equipment, such as pellet stoves. This incentive, known as the Energy Efficient Home Improvement Credit, encourages the adoption of energy-conscious heating solutions.

Eligibility Requirements for the Tax Credit

To qualify for the tax credit, the pellet stove must be installed in your principal residence, which is the home you live in most of the time. The property must be located in the United States. This includes houses, houseboats, mobile homes, cooperative apartments, and condominiums. The credit is available for existing homes as well as homes under construction.

The specific appliance must meet efficiency standards. Under the U.S. Internal Revenue Code, a qualifying biomass stove must have a thermal efficiency rating of at least 75 percent. The stove must be designed to heat the inside of the home or to heat water.

The stove must be new and placed in service during the tax year for which the credit is claimed. This means the original use of the stove begins with you. The credit applies to qualifying purchases and installations completed on or after January 1, 2023, and is available through December 31, 2032. It is important to confirm that the specific make and model of the pellet stove you purchase meets the 75% efficiency requirement, a detail often found on the manufacturer’s website or product documentation.

For installations in 2025 and beyond, taxpayers will need to report a product identification number for the stove when filing their taxes. This number will be provided by the manufacturer or retailer. This requirement does not apply to stoves installed before 2025.

Calculating the Credit Amount

The tax credit is equal to 30% of the total cost to purchase and install a qualifying pellet stove. This credit is subject to an annual maximum of $2,000. This is not a lifetime limit; a taxpayer could potentially claim the credit in multiple years for different qualifying improvements, up to the $2,000 annual cap for this category of property. 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 beyond what you owe in taxes.

The “total cost” used for the calculation includes the price of the stove itself and the expenses for professional installation labor. For example, if a qualifying pellet stove costs $3,000 and the professional installation fee is $800, the total qualifying cost would be $3,800.

To determine the credit amount, you would multiply the total cost by 30%. In the previous example, 30% of $3,800 is $1,140. Since this amount is below the $2,000 annual maximum, the full $1,140 could be claimed as a tax credit for that year.

Required Documentation to Support Your Claim

Before claiming the credit, you must have a Manufacturer’s Certification Statement in your possession. This is a signed document from the stove’s manufacturer certifying that the specific product model meets the requirements for the tax credit, including the 75% thermal efficiency rating. This statement is for your personal records and proof of eligibility; you do not submit it with your tax return.

You must also maintain thorough records of your expenses. This includes keeping detailed receipts and invoices that clearly itemize the purchase price of the pellet stove. The documentation should be just as clear for the costs associated with professional installation labor. These records are the basis for the total cost figure you will use to calculate the credit amount. Without this proof of purchase and installation costs, you cannot substantiate your claim.

How to Claim the Credit on Your Tax Return

Once you have confirmed your eligibility and gathered all necessary documents, you will claim the credit on your federal income tax return. The specific form required is IRS Form 5695, Residential Energy Credits. You will complete this form and attach it to your main Form 1040.

On Form 5695, you will enter the total qualified costs for your biomass stove, which includes the purchase price and installation labor, in the section for the Energy Efficient Home Improvement Credit. After calculating the final credit amount on Form 5695, you will transfer that figure to the appropriate line on Schedule 3 (Form 1040), Additional Credits and Payments. The total credits from Schedule 3 are then entered on the main Form 1040, directly reducing your tax liability. It is important to follow the form instructions carefully to ensure the credit is applied correctly.