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Updated Tax Incentives for Homeowners

Part of the tax extender bill passed by Congress in December 2010 made significant changes to tax incentives for federal taxpayers who install qualified energy efficient retrofits in their home, including higher efficiency heating, ventilation, and air conditioning (HVAC) equipment in their primary residences. An eligible taxpayer may claim up to $500 in tax credits, subject to caps based on the type of equipment installed.

The categories and tax credits are:

·        Central air conditioners (split systems and package units) - $300

·        Heat pumps (air-to-air and ground source) - $300

·        Furnaces (natural gas, propane, or oil; advanced main indoor circulating fan) - $150

·        Variable-speed furnace fans - $50

·        Duct sealing: 10% of material price

·        Other building improvements (windows, doors, insulation, hot water heaters)

But you have to hurry because these tax credits are only available for improvements made in 2011. Not taking advantage of them just leaves money on the table.

Deductions, credits, and rebates—

What’s the difference?

Tax deductions reduce your overall taxable income; the value of the deduction depends on your tax bracket. Tax credits reduce the amount of tax you owe dollar for dollar. Rebates reduce the cost of a purchase. Rebates on energy efficient investments are offered by some utilities and states.

Here are some terms you should be familiar with:

·        SEER- Seasonal energy efficiency ratio, a measurement of performance

·        EER- Energy efficiency ratio, another measurement of performance

·        COP- Coefficient of performance

·        AFUE- Annual fuel use efficiency

·        CEE- Consortium for Energy Efficiency

·        HSPF- Heat seasonal performance factor

·        DOE- U.S. Department of Energy

What is considered a high efficiency unit?

A split system central air conditioner must meet or exceed 16 SEER and 13 EER; package system central air conditioners must meet or exceed 14 SEER and 12 EER.

An air source heat pump must meet or exceed 15 SEER and 12.5 EER and 8.5 HSPF, in order to qualify for the tax credit. Package heat pump systems must meet or exceed 14 SEER and 12 SEER and 8 HSPF.

Natural gas furnaces, propane furnaces, natural gas hot water boiler, propane hot water boilers, oil furnaces, and oil hot water boilers all must meet or exceed 95% AFUE.

For the advanced main air circulating fan credit, the fan must use no more than 2% of the furnace’s total energy. If the fan is qualified, but the furnace is not, you will not be able to take 10% off the cost of the entire furnace. Ask your HVAC contractor to break out the cost of the fan in your bill. You can get a 10% tax credit on the cost of the fan alone. If the furnace is qualified, but the fan is not, you can still take the 10% tax credit on the full cost of the furnace.

If I claimed more than $500 in tax credits under the previous tax credit programs, am I still eligible?

No. The new law reinstates the lifetime tax credit limits, which disqualify any homeowner who has claimed more than $500 in 25c tax credits since January 1, 2005, from any further credits.

Who is eligible for the tax credits?

The person or organization making the expenditures is generally the recipient of the allowed tax deduction.

Why should you upgrade?

Advances in technology over the last ten years mean that today’s higher efficiency HVAC equipment uses less energy, runs more quietly, and provides improved indoor air quality and comfort. And by using less energy and improved refrigerants your new HVAC equipment is better for the environment.

Most homeowners would like to reduce their energy bills with higher efficiency HVAC equipments and these tax credits help make the initial investment more affordable. Talk to Cool Air Solutions about finding the right qualified equipment that meets your budget. They can show you how much energy (and money) you could save over the long term.

What do I need to qualify for the incentives?

Under the IRS rule, manufacturers must certify the performance of equipment. Obtain a certificate of performance from the contractor. Certifications need to be submitted to the IRS, bet keep them on file in case the IRS has questions. Homeowners should also make notes on when each eligible measure is installed- only equipment placed in service in 2006 and 2007 is eligible.

What paperwork or forms do I need to prove improvements were made, and where can I find them?

Use IRS form 8909. More information will be available in the 2006 IRS instructions for the version of 1040 tax form you file.

 Source: ACCA