Buying a New Furnace Tax Credit: What You Need to Know

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If you’re considering buying a new furnace for your home, there are great furnace tax credits options and rebates for energy efficient home improvements available that can help offset the cost. With high-efficiency furnace models, you can significantly reduce your energy bills while taking advantage of these incentives. Read on to learn more about the furnace tax credits, determine if you qualify, and discover how much you could potentially save.

Keep reading to learn more about getting a new furnace and tax credits.

What Tax Credits Are Available for Furnace Purchases?

One of the best furnace tax credits is the 25C tax credit. This credit allows homeowners to deduct 30% of the cost of installing a qualifying high-efficiency furnace, with a maximum of $600, between January 1, 2023 and December 31, 2032.

To qualify for the credit, the furnace must be ENERGY STAR certified and meet the highest efficiency tier established by the Consortium for Energy Efficiency (CEE), which is typically 97% AFUE or higher. The 25C tax credit is non-refundable, meaning it will reduce your tax liability for the year but won’t result in a refund.

There is a $600 annual limit for a gas furnace, $2,000 annual limit for heat pumps and heat pump water heaters and an annual $1,200 limit for other upgrades. That totals to $3200.

Other potential furnace tax credits and incentives include:

  • State and local utility rebates – Many states and utility companies offer additional rebates for installing ENERGY STAR-certified high-efficiency furnaces.
  • Federal residential energy efficiency tax credit – Covers 10% of the costs, up to $500 over the equipment’s lifetime for high-efficiency oil furnaces that use qualified biofuels.

With the combination of the 25C tax credit, local rebates, and manufacturer incentives, you could potentially save 30-50% or more of the total installed cost of a new ENERGY STAR furnace.

How Do I Claim the Furnace Tax Credit?

Claiming the 25C and other furnace tax credits is fairly straightforward. Here are the basic steps:

  1. Research and determine which tax credits and rebates you may be eligible for.
  2. Purchase and install a qualifying high-efficiency furnace in your home between 1/1/23 and 12/31/32.
  3. Keep all your receipts, ENERGY STAR certification paperwork, and any other documentation related to the furnace installation.
  4. When you file your taxes for the year, complete IRS Form 5695 to claim any eligible furnace credits.
  5. Submit Form 5695, receipts, and any required documentation with your tax return.
  6. If approved, your furnace tax credit will reduce your tax liability for the year.

Be sure to claim your credit in the same tax year that the furnace was installed. You may need to coordinate with your HVAC contractor to get copies of all the necessary invoices and certification paperwork. An accountant can also ensure the forms are filled out properly to verify your eligibility and maximize your potential savings.

Key Factors That Impact Furnace Tax Credits

Several important factors can determine whether you qualify for furnace tax credits and how much you can save:

  • Furnace efficiency rating – To qualify for full credits, the furnace must meet strict energy efficiency guidelines like a 97%+ AFUE rating and ENERGY STAR certification. Checking the manufacturer’s specs is key.
  • Date of installation – The 25C tax credit only applies to furnaces installed from 1/1/23 thru 12/31/32, while utility rebates can vary from year to year. Schedule appropriately.
  • Contractor invoices – You’ll need detailed invoices showing model numbers, efficiency ratings, and costs to provide with your tax return to claim credits.
  • Homeownership – Tax credits are only available for furnaces installed in a primary residence, not rentals or second homes. You must own the home.
  • Tax liability – These are non-refundable tax credits, meaning they can reduce your tax bill but won’t result in a refund check from the IRS. You need sufficient tax liability to benefit.

Following the steps outlined above and being aware of key qualifying factors can ensure you tap into all available tax credits and incentives to save big on a new high efficiency furnace. Consult with your tax preparer or HVAC contractor for guidance specific to your situation.

Other Benefits of an Energy-Efficient Furnace

While the potential tax savings are a major perk, upgrading your home’s furnace provides many additional benefits that will make a difference for years to come. Here are some key advantages you can expect from investing in a new high-efficiency model:

Lower Energy Bills

Energy-efficient furnaces have AFUE ratings of 90% and above, meaning up to 90 cents of every dollar spent on heating fuel is converted directly into heating your home. Older models can have AFUE ratings as low as 60%, resulting in significant wasted energy and money. With a more efficient furnace, those energy savings can add up to thousands of dollars over the typical 15-20-year lifespan.

Improved Temperature Control

Precision electronic ignition, variable speed fan motors, and smarter furnace controls provide more consistent temperatures throughout your home. You can program custom comfort settings to keep each area of the house just right. No more cold or hot spots!

Added Safety Features

Modern furnaces meet much more stringent safety and emission standards than older units. Features like sealed combustion prevent carbon monoxide risks, and improved ventilation reduces indoor pollutants. Many new models also have built-in alerts to notify you in case of any malfunction.

Peace of Mind

Higher-quality components result in fewer repairs and breakdowns. When you do need maintenance, warranty coverage on the parts and labor can save you money. ENERGY STAR-certified furnaces typically come with a Lifetime heat exchanger warranty and a 10 year parts warranty, compared to a 20 year heat exchanger warranty and 5 year parts warranty, on standard models.

Quieter Operation

Insulated blower cabinets, multi-speed or variable speed fans, and vibration dampening result in significantly quieter airflow. You’ll barely notice when your efficient furnace kicks on.

Getting the benefits of upgraded home comfort, lower energy use, and tax savings makes a new ENERGY STAR certified high-efficiency furnace an excellent investment in your home for the long run. The incentives just sweeten the deal further.

The Logan Difference

At Logan A/C and Heat, we take pride in being your local, family-owned HVAC experts since 1969. Our team of highly-trained technicians deliver an exceptional service experience that keeps our customers comfortable year after year.

What sets Logan A/C and Heat apart?

Training and Expertise

All of our technicians complete an intensive in-house training program so they are prepared to provide top-notch installation and repair services for all makes and models. Our install managers have decades of hands-on HVAC experience to ensure every system is properly set up.

Customer Care

We take the time to listen to your needs and communicate every step of the process. Our techs follow a rigorous checklist, with an install manager sign-off, to guarantee your satisfaction. We walk you through the new system and explain the system operation prior to leaving and answer any questions you might have.

Reliable Service

At Logan A/C and Heat, we make sure we have all the necessary parts on the truck before each appointment so we can get the job done right the first time. No waiting around! We also assist with paperwork and warranties.

Giving Back

From donations and volunteering with local charities, we believe in supporting our community. We frequently offer giveaways and specials as a small token of appreciation for our loyal customers.

Contact Logan A/C & Heat Services today to experience the “Logan Difference” for yourself! When you need expert HVAC installation or repair in Cincinnati, Dayton, and Columbus, Ohio areas, we have the skills, experience, and commitment to customer satisfaction to keep you perfectly comfortable.

Frequently Asked Questions

Here are answers to some of the most common questions homeowners have about furnace tax credits:

How much can I get back in tax credits for a new furnace?

For the 25C energy efficiency tax credit, you can get back 30% of the cost of your new furnace installation, up to $600 maximum. So if your total cost is $4,000, your credit would max out at $600. Additional rebates from local utilities and manufacturers, like the tax benefits for trane furnace purchases, can save you even more.

What efficiency rating does my furnace need to qualify for tax credits?

To qualify for the full 25C tax credit and most utility rebates, your new furnace should be ENERGY STAR certified and meet the highest efficiency tier set by the Consortium for Energy Efficiency, which is typically 97% AFUE or greater. The higher the efficiency, the bigger your potential savings.

Can I claim a credit if I buy a furnace in 2022?

The expanded 25C tax credit only applies to furnaces purchased and installed in 2023 or future years through the end of 2032. For 2022, there is a smaller $500 lifetime credit for oil furnaces that use biodiesel or biomass fuels. There are no 2022 or future year tax credits for standard natural gas furnace upgrades.

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