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Are New HVAC Systems Tax Deductible?

Posted on February 28, 2019

Are HVAC Systems Tax DeductableThe 2019 tax season (for tax year 2018) is upon us, which means people are trying to find ways to deduct expenses. Curious if you can write off a new HVAC system on your taxes? Are there any other energy-efficiency improvements that qualify for a federal or state tax credit?

The answer is a qualified maybe. There are indeed tax credits available for those who have made certain efficiency improvements, and some may also qualify for rebates and other financial incentives. Check the ENERGY STAR Rebate Finder. and Kansas State Energy Division Programs and Incentives websites to search for available rebates and incentives in your area.

HVAC and Energy Efficiency Tax Deductions

2017 Nonbusiness Energy Property Tax Credit (Expired)

Let’s start with the bad news first — the nonbusiness energy property credit expired on December 31, 2017. You can’t claim the nonbusiness energy property tax credit for any property placed in service after 2017 (IRS). This credit gave back 10% of cost of new equipment up to $500, or a specific amount ranging from $50-300, and covered air source heat pumps, central air conditioning, non-solar water heaters, advanced main air circulating fans, biomass stoves and gas/propane/oil-fired water boilers, furnaces and fans. The same credit was extended to energy efficiency improvements including insulation, metal and asphalt roofs, windows, doors and skylights.

This credit applied only when updating or replacing equipment/fixtures in your existing primary residence and covered neither new construction nor rental properties. Homeowners who made such improvements in 2017 but failed to apply for the credit on that year’s tax returns cannot apply for it on their 2018 returns — but may be able to amend their 2017 returns to claim the credit there. To make such an amendment, see your local tax specialist or call the Internal Revenue Service (IRS) for advice.

Though this credit has expired at the time of this writing, there is always the possibility that Congress may vote to extend it in the future. Visit IRS.gov/Extenders to find out if legislation may have extended this credit before filing your 2018 returns.

Residential Energy Credit

According to the IRS, you may be eligible for the Residential Energy Credit if you made energy-saving improvements to your home located in the United States in 2018. This is an extension of a credit that had expired at the end of 2016, included in the Bipartisan Budget Act of 2018. It is scheduled to gradually step down in credit value each year through the end of 2021.

To qualify for this tax credit you must have installed qualified equipment of one of these four categories: geothermal heat pumps, small (residential) wind turbines, solar energy systems (including solar water heaters) and fuel cells. To claim your Residential Energy Credit use IRS form 5695.  According to the IRS, this is the same form used to “take any residential energy efficient property credit carryforward from 2017 or to carry the unused portion of the credit to 2019.” For full instructions on this form download this PDF: https://www.irs.gov/pub/irs-pdf/i5695.pdf.

Tax Credits and Financial Incentives for HVAC Improvements

So in review, what’s the answer? Can you write off a new HVAC system on your taxes? Most likely not. As noted above, the Nonbusiness Energy Property Tax Credit, which would have allowed a substantial deduction for the installation of a traditional heating or air conditioning system, has expired. If, however, you installed certain next-generation climate control equipment, you may qualify for the Residential Energy Credit (Form 5695).

Upon installation or upgrade of any part of your heating, ventilation and air conditioning system, or any related insulation and energy efficiency improvements, always be on the lookout for potential tax credits, rebates and other financial incentives. You may find rebates such as $225-1500 on energy-efficient washing machines, $25-125 on smart thermostats and $100-200 on certain water heaters.

*Disclaimer: The tax credit information contained within this website is provided for informational purposes only and is not intended to substitute for expert advice from a professional tax/financial planner or the Internal Revenue Service (IRS).

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