By replacing an old heating and cooling system, not only can you save money overtime, due to increased energy efficiency, but you could also earn a tax credit worth up to $1,500.
According to Energy Star, a federal program that promotes energy efficiency, about half of what the average household spends on energy bills goes toward heating and cooling. By upgrading your heating, ventilation, and air conditioning (HVAC) to energy-efficient units you can cut utility costs by about 20%, or $200 annually, on average. This type of upgrade doesn’t come cheap, so to help offset the cost, the IRS allows a tax credit worth up to $1,500 on eligible HVAC systems put into service during 2009 or 2010. Your tax adviser can help you claim the tax credit, and advise you if the work you did or are going to do qualifies.
Pay attention to efficiency ratings
The Energy Star seal of approval alone isn’t enough to garner the federal tax credit. Credit-eligible (http://www.energystar.gov) gas furnaces (either natural gas or propane) must have AFUE ratings of 95% or greater; oil furnaces, 90%. A boiler must have an AFUE of 90%. You’ll want to hire an HVAC contractor to calculate the size of the equipment needed for your home. Be cautious of bidders who take a one-size-furnace-fits-all approach. Air source heat pumps (http://energystar.custhelp.com) and advanced main circulating fans can also qualify for the $1,500 tax credit.
Technically, a homeowner could replace either a furnace or a central air-conditioning unit and be eligible for the tax credit. Practically speaking, you probably will have to replace both for the A/C to qualify, says Enesta Jones, a spokeswoman for the U.S. Environmental Protection Agency. Most homes have split systems made up of an outdoor condenser and compressor that are connected to an indoor air handler that’s part of the furnace. Split systems must have a SEER rating of at least 16 and an EER rating of at least 13. The higher the rating, the more energy efficient the unit. A package A/C system, which houses all of its components outdoors, requires lower ratings. The tax credit is aggregated for all qualifying energy upgrades-insulation, roofs, windows, and so on-so you can’t claim separate $1,500 credits for each project. Only improvements to your existing primary residence count. New homes and second homes are excluded.
HVAC’s value goes beyond savings
There are other benefits to upgrading you HVAC system, primarily the increased comfort level you’ll experience in your home and the lowering of the use on non-renewable fossil fuels. One of the other big benefits is the value it will add to your home when it comes time to sell. That doesn’t mean you’ll recoup the whole cost of installing the new system, but potential buyers will be more attracted to your home, and will be less likely to request or need expensive HVAC repairs. Increased salability is especially important in today’s market.
This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.
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