How to Claim the Energy Tax Credits You Deserve

Last week we talked about Federal Solar Tax Credits . While all that is important, Blue Frost Heating & Cooling installs more air conditioners and furnaces. AND the December 31, 2016, deadline for installing an eligible HVAC system is only two and a half weeks away.

Did you install or have an energy-tax-credit-eligible heating and cooling system installed *this year? If you did, this is a very good thing. In addition to smaller utility bills, energy-efficient home system upgrades come with a not-too-shabby federal tax credit. And Blue Frost Heating & Cooling doesn’t want you to miss out on a single dime of it! Read on to learn how to collect your energy tax credits in 2017.

strong>*Note: You must have installed an eligible heating and cooling system by December 31, 2016

What the Tax Credit Means to Your Wallet

The tax credit makes it a little easier to upgrade yourHVAC units to energy-efficient ones. Energy-efficient upgrades can cut utility costs by about 20 percent, or $200 annually, on average. But these upgrades aren’t cheap. Prices vary, but a high-efficiency furnace starts around $3,500, including installation. A standard furnace may cost $2,400.

Eligible Energy-Efficient Home Systems

The following home systems could yield up to a $500 tax credit on your 2016 tax return in April.

Biomass stoves
Heating, ventilation, air conditioning
Insulation
Roofs (metal and asphalt)
Water heaters (non-solar)
Windows, doors, and skylights
Advanced main air-circulating fans (the blower motor that blows heated air through your ducts)

Deductions vs. Energy Tax Credits

The energy tax credits are better than deductions:

Deductions reduce your taxable income.
Credits give you a dollar-for-dollar reduction in your tax liability. Simply, if you get the $500 credit, you pay $500 less in taxes.

Limits on IRS Energy Tax Credits

In addition to the $500 max, there are limits on the energy tax credits.

Credit extends to 10% of the cost. You must spend $5,000 to get $500.
$500 is a lifetime limit. It is the max for all eligible improvements combined. If you’ve already claimed $500 or more in past years combined, you’re no longer eligible to claim any more tax credits. However, if you got $200 in years past, you can get up to $300 this year.
The cap is even lower than $500 with some home systems, like windows.

Home Systems That Cap Below $500

No matter how much you spend, some home systems will never get you the full $500 credit. You could combine the following systems:

$200 max total (not per window) on new windows
$50 max for any advanced main air-circulating fan
$150 for any qualified natural gas, propane or oil furnace or hot water boiler
$300 max for any qualified electric and geothermal heat pumps, central air conditioning systems and natural gas, propane or oil water heaters

Improvements Must Meet IRS Energy-Efficient Standards

Improvements must meet IRS energy-efficiency standards to qualify for the tax credit. Not just any improvement or product will do. For example,

Boilers and furnaces have to meet the 95 AFUE standards.
Windows, skylights, and doors need to meetEnergy Star 6.0 standards.

Tax Credits Sometimes Cover Installation

The credit will cover installation if the installation is difficult or critical for the system to function safely. Even if you’re handy enough to install your own windows and roof, the government will not cover installation. So which home systems will the federal government cover installation for?

Biomass stoves
HVAC
Non-solar water heaters
Advanced main air-circulating fans

Which home systems will the federal government not cover installation for?

Insulation
Roofs
Windows, doors, and skylights

How to Claim Your Energy Tax Credits

Determine if the system you’ve installed or had installed is eligible for energy tax credits. VisitEnergy Star’s website. Ithas detailed guidelines on which heating and cooling systems are covered. It’s your safest bet for information on which kinds of systems and individual products get you the credit.

Save manufacturer certifications and home system receipts! You’ll need them for proof of purchase, should the IRS ask.

File IRS Form 5695 with the rest of your returns. This can be tricky, so pay attention to the details.

Not every product with an Energy Star rating will get you the energy tax credits you deserve. Do your homework and call Blue Frost Heating & Cooling at 630-444-0860 for details about the energy tax credit program. And remember, you must have installed an eligible heating and cooling system by Saturday, December 31, 2016.

Just in case you were wondering about other tax deductions you may be able to claim, read Don’t Miss These Home Tax Deductions.