Federal 25C Energy Tax Credits Unraveled

The American Recovery and Reinvestment Act of 2009 (aka “the Stimulus Bill”) has a number of provisions in it to induce consumers to take energy conservation measures by replacing or installing high-efficiency heating and air conditioning equipment and renewable HVAC alternatives.  A good overview of these options is available from the government’s Energy Star Program website.

Essentially, there is a a maximum $1500 tax credit that can be taken for new high-efficiency cooling equipment that has a Seasonal Energy Efficiency Ratio (SEER) of 16 or greater combined with an EER of 13 or greater.  For air source heat pumps, the Heating Seasonal Performance Factor (HSPF) must be 8.5 or greater with cooling performance rated at 15 SEER/12.5 EER or greater. For gas-fired furnaces, the Annual Fuel Utilization Efficiency (AFUE) must be 95% or higher.  For oil furnaces, the AFUE requirement is 90% or higher. For gas boilers, the rating requirement is 90% AFUE.  The credit only covers up to 30% of the installed cost.  In other words, you must spend at least $5000 on your installation to receive the full $1500 credit.  However, you can bank whatever is still left over for another qualifying capital investment. This credit is only good until December 31st, 2010 and only for your principal residence. In order to receive your credit,  IRS form 5695  must be filled out and is available here.

Geothermal heat pumps ARE NOT restricted to a $1500 tax credit limit. You get the full 30% energy tax credit no matter what the installed cost as long as your equipment meets the Energy Star requirements. These credits are also available until December 31st, 2016 and you can carry forward any unused portion during that time period.  For instance, if your geothermal installations cost $50,000, you would qualify for a $15,000 tax credit.  If you only owe Uncle Sam $7500, you could carry forward the additional $7500 to use against next year’s tax liability. This incentive is good for first AND second homes too.  IRS form 5695  must be filled out and is available here.

Commercial building owners can also get their share of the federal stimulus package by making qualifying energy saving improvements.  10% of the installed cost of a geothermal heat pump (minus any subsidies) is applicable for corporate tax credits. There is no cap on the amount of qualifying expenditures that can be used for the credit, nor a limit on the credit itself.  No matter the installation cost, you will receive a 10% credit under this legislation.  For corporate tax credits, IRS form 3468 must be filed and it is available here.

Geothermal heat pumps are also eligible for Modified Accelerated Cost-Recovery, which provides for accelerated depreciation over five years. This means an even shorter payback period for the investment in renewable energy. Commercial geothermal heat pumps have not been included in the ENERGY STAR ratings; therefore, commercial units do not need to be ENERGY STAR rated to qualify for these incentives.  Some businesses may not have enough tax liability to take full advantage of this program.  In these instances, if a business would qualify for the tax credit, they can instead take a direct 10% of installed cost grant from the Treasury Department—which the administration will supposedly pay directly within 60 days.

As always, to keep up to date with what’s new in HVAC technology, visit our website at airideal.com and follow us on Twitter @airideal and at our Facebook page!

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One comment on “Federal 25C Energy Tax Credits Unraveled

  1. […] available until 2016, all of the conventional heating and cooling high efficiency tax credits mentioned previously in another blog post here are about to disappear. You would think that there would be a massive last minute rush of consumers […]

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