HVAC 2023 Tax Credits

You already know you can get tax credits and rebates based on your usage of efficient HVAC technology in your home or business. What many people don’t know, however, is when new legislation is passed that can benefit your energy bill, your taxes, and your wallet.

As you read, please bear in mind that this is an Energyright and IRS program. All information is accurate at the time of publication but is subject to change with policies from the two aforementioned organizations.

Rebates versus tax credits

While tax credits are what we’re most accustomed to – “discounts” on your annual tax return – rebates are slightly different.

These particular rebates are overseen by individual states, meaning Alabama, Mississippi, and Tennessee will have different protocols. While you may be able to get rebates this early, it is likely many programs may not fully roll out until the end of this year. Additionally, you could get the rebate in a variety of ways:

• At the time of purchase;

• At the time of installation; or

• After your purchase when the application has processed.

You’ll want to research what is required in your state for rebate applications, or reach out to McCoy’s Heating and Air to learn more.

HVAC and the Inflation Reduction Act

In 2022, legislators passed the Inflation Reduction Act to help individuals and businesses receive economic relief. The Act covers many areas, but there are a couple of important details involving HVAC units: Qualifying tax credits for standard heat pumps and water heaters, those included in the High-Efficiency Electric Home Rebate Act (HEEHRA) program, and tax credits available to homeowners through 2032.

On the plus side, these changes will allow for a more positive impact on the environment and are guaranteed to reduce energy bills for consumers. One of the major cons is that it may be more difficult to find parts for older units. However, this doesn’t automatically mean you need to upgrade. We strongly recommend you allow us to maintain your unit at least twice a year to prevent any need for unnecessary damage or premature upgrades.

For those ready to upgrade to receive these perks, choose Energy Star appliances. But you can qualify for these credits and rebates without the Energy Star name as long as you meet a couple of criteria:

• Central air systems under 45,000 Btu – must have a 14.3 SEER2 rating.

• At or above 45,000 Btu – must have a 13.8 SEER2 rating

• Heat pumps – must have a 14.3 SEER2 rating and 7.5 HSPF2

What do all these abbreviations mean?

Btu – stands for British Thermal Units. It’s how we measure how much air can be conditioned per hour based on the area it’s covering. The bigger your home or office space, the higher your Btu.

SEER2 – Seasonal Energy Efficiency Ratio (SEER) is used in residential air conditioning. The higher the number, the lower your electricity usage, which means greater efficiency. Starting January 1, 2023, SEER2 is an updated version of this ratio that accounts for other variables in the unit such as fan power and heating modes.

HSPF2 – Heating Seasonal Performance Factor measures the efficiency of heat pumps in colder temperatures. Like the SEER2 ratio, HSPF2 went into effect January 1, 2023.

Qualifying HVAC tax credits

In general, the Inflation Reduction Act of 2022 will allow for tax credits in 2022 and 2023.

For HVAC heat pumps:

• Installed in 2022: Up to $300 tax credit

• Installed in 2023: tax credit amounting to 30% of your project costs; up to $2000

For heat pump water heaters:

• Installed in 2022: Up to $300 tax credit

• Installed in 2023: tax credit amounting to 30% of your project costs; up to $2000

These tax credits are also based on individual income, among other factors.

High-Efficiency Electric Home Rebate Act Program (HEEHRA)

Again based on individual factors, homeowners can qualify for rebates through the Inflation Reduction Act. For heat pump water heaters, homeowners could receive up to $1,750, and for heat pumps, up to $8,000 – as long as they are installed in 2023.

Even if you don’t have a drastic scenario requiring these installations, you can qualify for rebates just to upgrade these items for energy efficiency.

For low-income households, or those who earn equal to or less than 80% of the Area Median Income, the project costs could be covered up to 100%. For moderate-income households who earn more than 80% but less than 150% of the Area Median Income, up to 50% of the projects could be covered.

Heat pump tax credits through 2032

The 25C Energy Efficiency Home Improvement tax credit allows anyone to qualify for the $2,000 federal income tax credit as long as they fall within the appropriate Consortium for Energy Efficiency (CEE) tier.

Alabama, Mississippi, and Tennessee all fall within the CEE South region, and to qualify for the credit you would need to either install a ducted heat pump that falls within Tier 1 requirements or a ductless heat pump that falls within Tier 2 requirements.

Remember these are based on Energyright and IRS programming. All information is subject to change with policies from the two aforementioned organizations.

We’re here to help

You have the information, resources, and economic interest to save some money in the next few years, but some of this may feel confusing.

That’s where we come in.

McCoy’s Heating and Air is happy to consult with you on your current HVAC needs, future upgrades, and all tips to help you save money and maximize your annual refund.

Give us a call or send us an email today and let us know how we can help you make your home energy – and economically – efficient.