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How to Save Big on AC and Heat Pump Systems with New 2023 Federal Tax Credits and Rebates

February 7, 2023 | Blog

If you’re considering purchasing a new energy-efficient AC or heat pump, now is definitely the time to do so.

The 2022 Inflation Reduction Act which passed late last year, includes increased tax credits and rebates towards the purchase and installation of new energy-efficient AC and heat pump systems. The 25C Residential Energy Efficiency Tax Credit was enacted to help residential homeowners combat rising system costs and carbon emissions. We will review key information everyone should know before purchasing a new system.

Key Points

  • The federal income tax credits and rebates are for qualified AC and heat pump systems only.
  • Tax credits and rebates cover the purchase and installation costs of up to $3,200 per year.
  • The Consortium for Energy Efficiency (CEE) recently updated its appliance efficiency rating to determine which AC and heat pumps will qualify for tax credits and rebates in 2023.

Important heat pump Rebate and Tax Credit Information

  • The AC and heat pump rebates, and tax credits included in the IRA Act
  • Which systems qualify
  • How to apply for tax credits and rebates

The Tax Credits and Rebates included in the Inflation Reduction Act

Tax credit incentives amounts and qualifications are based on a variety of factors, such as meeting the system type and energy-efficiency requirements, and your tax advisor’s qualification confirmation. Homeowners can claim up to a 30 percent tax credit for the purchase and installation of a new energy-efficient heat pump, heat pump water heater, air conditioner system, and an electrical panel upgrade in conjunction with a new system purchase only. The tax credits renew annually and are available until funding has been depleted.

It is recommended that homeowners review CEE and SEER2 requirements for their region and new system before purchasing. Here is a breakdown of the tax credits available under Tax Section 25C:

  • Up to $2,000 for Electric Heat Pumps (Heats and Cools)
    • Split Ducted
    • Non-Ducted
    • Packaged
  • Up to $600 for Air Conditioners
  • Up to $600 for Furnaces

Heat Pump cools and heats

The High-Efficiency Electric Home Rebate (HEEHR) program availability and dates will vary from state to state. Households with an annual income less than 150% of the local median income, as defined by the state, may be eligible for rebates under the program up to:

  • $8000 for Heat Pumps
  • $1750 for Heat Pump Water Heaters
  • $4000 for an Electric Panel Upgrade (if needed to support efficiency system upgrade)

Local city utility rebates may also be available and can be used with tax credits. You can verify with your local utility company or your state energy office to confirm if rebates are available and the amounts.

Which AC and Heat Pumps Systems Will Qualify for Tax Credits?

To qualify, the new AC or heat pump system will need to be an ENERGY STAR-certified appliance. Look for the ENERGY STAR certification before purchasing.

Energy-efficient AC and heat pump systems dramatically reduce energy waste while keeping homes comfortable. That is why some cities have already begun to require that only energy-efficient systems be installed for any home upgrade or new home builds. Making now a great time to use the new federal tax credits and rebates.

AC or Heat pump systems installed before December 31, 2020, may qualify for the $300 2022 25C Energy Efficiency Home Improvement tax credit if they meet certain energy-efficiency standards.

Systems installed after December 31, 2020, may qualify for the Inflation Reduction Act federal income tax credits of $600 or $2,000 if energy-efficiency standards are met.

To qualify you will need to confirm the following:

-If the systems are duct or non-duct

-If the systems are eligible for the tax credit based on the Consortium for Energy Efficiency tier requirements

The CEE provides energy efficiency performance guidelines and a rating of eligibility to ensure energy efficiency and max performance. They advocate energy efficiency policies and programs that help advance home appliance technologies.

– A ducted system that meets CEE’s Tier 1 requirements for your state and region

– A ductless system that meets CEE’s Tier 2 requirements for your state and region

Tax credits and rebates

How to Confirm Tax Credits and Rebates Eligibility

A tax professional can confirm if your household will qualify, and how to apply for the tax credit. Usually, you’ll need to know if you will have a tax liability to reduce.

All tax credits are a dollar-for-dollar reduction of the income tax you owe each year. Meaning, to maximize your credit, you will need to owe at in taxes to utilize tax credits. Provide your AC or heat pump energy upgrade information to a tax professional if you have any questions.

Let’s clarify the difference between tax credits and rebates. Energy rebates are not the same as tax credits. Rebates are applied at the time of purchase, installation, or post-purchase once your rebate application has been approved. Again, federal rebate dates of availability and amounts will vary from state to state.

Now’s the opportunity to not only save money with a new energy-efficient AC or heat pump on your monthly energy bill, but now you can save even more on the purchase and installation with tax credits and rebates. With Service Wizard, you can save up to $3,600 on a new AC or heat pump system purchase with our limited-time discount offer up to $1,000, a local utility rebate of $600, and federal tax incentives. If you are ready to get started, a Service Wizard Heating & Air Conditioning professional is ready to help you with your new energy-efficient AC or heat pump. Contact us today!

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