What HVAC System Qualifies for the Tax Credit?
Discover if your high-efficiency HVAC system qualifies for the tax credit by understanding the specific performance and documentation requirements.
Upgrading your home’s heating, ventilation, and air conditioning (HVAC) system can be more affordable thanks to federal tax incentives for energy efficiency. By choosing qualifying high-performance equipment, you can lower the upfront installation cost through tax savings, in addition to the long-term savings on utility bills.
Understanding the Energy Efficient Home Improvement Credit
The federal incentive for HVAC upgrades is the Energy Efficient Home Improvement Credit, governed by Section 25C of the U.S. tax code. This is a nonrefundable tax credit, meaning it can reduce or eliminate your tax liability, but you will not receive any portion of it back as a refund if the credit amount exceeds what you owe. Any unused amount of this credit cannot be carried over to future tax years.
The credit is calculated as 30% of the total cost of qualifying improvements, including the price of the equipment and any labor costs for installation. The credit is subject to annual limits that reset each year, allowing homeowners to plan projects across multiple years. The total amount a taxpayer can claim for all eligible improvements in a single year is capped at $3,200.
Within this overall cap, there are specific sub-limits for different types of HVAC equipment. A $2,000 aggregate annual limit applies to the combined costs of electric or natural gas heat pumps, heat pump water heaters, and biomass stoves or boilers. Separately, there is a $600 annual limit for the costs of qualifying central air conditioners, as well as a $600 limit for natural gas, propane, or oil furnaces and hot water boilers.
HVAC Equipment That Qualifies
To be eligible for the tax credit, HVAC equipment must meet specific energy efficiency standards set by organizations like ENERGY STAR and the Consortium for Energy Efficiency (CEE).
Electric or Natural Gas Heat Pumps
Heat pumps are subject to specific performance ratings. For split system air-source heat pumps, the required metrics are the Seasonal Energy Efficiency Ratio 2 (SEER2), Energy Efficiency Ratio 2 (EER2), and the Heating Seasonal Performance Factor 2 (HSPF2). Beginning in 2025, the Consortium for Energy Efficiency (CEE) has established a unified North American region for these systems. To qualify, a system must meet the criteria for the CEE Tier 1 specification.
Central Air Conditioners
Central air conditioners must meet minimum SEER2 and EER2 ratings, and higher numbers indicate greater efficiency. For split systems placed in service from 2025 onward, the requirement is a SEER2 of 17.0 or higher and an EER2 of 12.0 or higher. Packaged systems have their own set of standards, requiring a SEER2 of 16.0 or higher and an EER2 of 11.5 or higher.
Natural Gas, Propane, or Oil Furnaces and Hot Water Boilers
For furnaces and boilers, the performance metric is the Annual Fuel Utilization Efficiency (AFUE), which measures the percentage of fuel converted into usable heat. To qualify for the tax credit, a natural gas, propane, or oil furnace must have an AFUE rating of 97% or greater.
Electric or Natural Gas Heat Pump Water Heaters
Heat pump water heaters, which work by pulling heat from the surrounding air and transferring it to water in a tank, must meet specific ENERGY STAR program requirements to qualify for the credit.
Required Documentation and Verification
Proper record-keeping is necessary to claim the Energy Efficient Home Improvement Credit. The IRS requires you to keep specific documents that prove your purchase and the equipment’s eligibility, though these are not submitted with your tax return.
A Manufacturer’s Certification Statement is a signed document from the product manufacturer that attests the specific model qualifies for the tax credit. You should request this from your installer or download it from the manufacturer’s website for your personal records.
You must also retain detailed invoices and receipts from the seller or installer. These documents should clearly itemize the cost of the equipment and installation labor, and the purchase date must be visible.
Before making a purchase, you can verify that a system qualifies by looking for the ENERGY STAR label and using the model number to confirm its eligibility through online databases. Starting in 2025, you will also need a Qualified Manufacturer Product Identification Number (PIN) for the equipment to include on your tax form.
How to Claim the Credit on Your Tax Return
The credit is claimed using IRS Form 5695, Residential Energy Credits. This form is used to calculate both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit, so you must ensure you are completing the correct part. The costs for your qualifying HVAC equipment are entered in Part II of the form.
After entering the costs of your improvements, Form 5695 will guide you through calculating the allowed credit based on the 30% rule and the applicable annual limits. The final calculated credit amount from Form 5695 is then transferred to Schedule 3 (Form 1040), Additional Credits and Payments. This result flows to your main Form 1040, where it reduces your overall tax liability.