Are you wondering how to save incredibly on your 2021 tax bill? It could be as simple as re-examining your HVAC systems and modifications you made in 2020. Heating, cooling, air-conditioning, and residential energy generation systems often qualify for federal tax credits. Read on to learn about the HVAC tax credits and renewable energy tax credits that could be available to you in 2021.
- » HVAC Tax Credits 2021 for Eligible HVAC Systems
- » What Does the Future Hold for HVAC Tax Credit?
- » Residential Renewable Energy Tax Credit 2021
- » Section 179 for Businesses
- » The Bottom Line
HVAC Tax Credits 2021 for Eligible HVAC Systems
In January 2020, the federal government extended HVAC tax credits for eligible HVAC systems put in service between January 1, 2018, and December 31, 2020. Thanks to this incentive, homeowners could claim tax credits equal to 10% of the installation costs or up to $500 on energy-efficient HVAC appliances, including boiler, heater, air conditioner, mini-split furnace, etc. However, the rebates will expire in December 2020, and there is no guarantee they will be around in 2021.
Only Energy Star-certified products are eligible for the renewed HVAC tax credits. The designation means that the manufacturer has demonstrated that their products consume considerably less energy than comparable alternatives but offers the same or better results. And homeowners must install the new appliances in an existing home, meaning no rentals and homes under construction. However, grasping the requirements and the systems’ specifications is quite tricky. It is, therefore, critical to consult with a qualified and competent HVAC contractor to determine your equipment’s eligibility accurately.
Following is an overview of the HVAC appliances eligible for the 2020 Non-Business Energy Property Tax Credits and how much rebates homeowners could earn from each equipment:
- Furnaces and fans ($150)
- Central air conditioning ($300)
- Water heaters ($300)
- Heat pumps ($300)
- Hot water boilers ($150)
What Does the Future Hold for HVAC Tax Credit?
The ACCA (Air Conditioning Contractors of America) is pushing for the extension of HVAC tax credits to 2026 and the increment of the credit’s lifetime limitation from $500 to $1,200.
But expect a significant difference in the new incentives. Contractors will be required to install new systems according to ACCA standards. While this may be quite intimidating, it is a move that will see homeowners save significantly on their energy bills. According to the National Institute of Standards and Technology(NIST), improper installation could increase HVAC energy bills by 30%, meaning that the appliances operate at only 70% of the indicated efficiency. Compliant installations will certainly benefit homeowners with more energy and money savings.
Residential Renewable Energy Tax Credit 2021
Taxpayers can claim federal tax credits on renewable energy systems installed through the end of 2021.
Existing homes, residences under construction, primary residences, and second homes are eligible for these tax credits, but rental properties do not qualify.
The tax credit is 30% of the total cost of renewable energy systems placed into service by December 31, 2019, and 26% for systems placed into service after December 31, 2019, but before January 1, 2021. Systems installed after December 31, 2020, but before January 1, 2022, qualify for a 22% tax credit. To claim a renewable energy tax credit, you must complete and file IRS Form 5695 with your tax return.
Equipment eligible for renewable energy tax credits include:
- Wind turbines producing up to 100 kilowatts of electricity for home use.
- Solar panels generating electricity for residential use.
- Energy Star-certified heat pumps.
- Solar-powered water heaters.
- Fuel cells generating at least 0.5 kilowatts of electricity using an electrochemical process.
There is no dollar cap on credits for most renewable energy systems, but fuel cell credit is limited to $500 per 0.5 kilowatts of power capacity. So, installing a 2-kilowatt fuel cell would earn you $2,000 in tax credit.
Note that the tax credit is non-refundable, so do not expect the IRS to send you the difference in cash your credit exceeds the tax you owe on your return.
Section 179 for Businesses
Before 2018, the law defined HVAC systems as a capital improvement to a building rather than a business expense. For this reason, the equipment did not qualify for tax deductions. But now, the IRS recognizes new and used heating, ventilation, and air-conditioning appliances as Section 179 expenses. This allows business owners to deduct the full cost of their HVAC systems in the first year, significantly lowering their tax liability and increasing their savings.
The Bottom Line
You do not have to wait any longer to claim tax credits on your HVAC or renewable energy systems because some rebates are only available for a limited time, as mentioned above. Still, Section 179 can vary from year to year. You will, therefore, want to take advantage of the opportunity early enough.
If you need help determining what tax credit you qualify for with your existing HVAC system or upgrading to energy-efficient HVAC equipment, Conejo Valley Heating and Air Conditioning Inc. can help. Call us at (805) 499-0448 for a free consultation and learn how our HVAC services in Conejo Valley and surrounding areas can benefit you.