30% Tax Credits for Homeowners

For heat pumps, ENERGY STAR offers a general certification and a cold climate certification.

In general, all ducted heat pumps that have earned the ENERGY STAR label are eligible, as well as certified mini-split systems (non-ducted) with:

• SEER2 ≥ 16
• EER2 ≥ 12
• HSPF2 ≥ 9

Among the models that earn the ENERGY STAR Cold Climate designation, eligible systems are:

• ducted with EER2 ≥ 10
• mini-splits with
  • SEER2 ≥ 16
  • EER2 ≥ 9
  • HSPF2 ≥ 9.5

Note: The information provided here about Air-Source heat pumps that are eligible for the tax credit is the most current available. Currently, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.” The eligibility requirements are subject to change based on the final CEE Criteria and the Internal Revenue Service (IRS).

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits. The overall total limit for an efficiency tax credit in one year is $3,200. This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners. Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

Principal Residence Owners

Upgrades must be to an existing home & your principal residence. New construction and rentals do not apply.

A principal residence is the home where you live most of the time. The home must be in the United States. It can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home.

Given the way the annual aggregate limits are structured, it may be prudent to spread your improvements over a few years. If your heating or cooling system is old, and you are considering a new air source heat pump, it is always wise to optimize your attic insulation first, so you don’t pay for more heating and cooling than you actually need. Making these upgrades together in one year would allow you a tax credit of up to $1,200 for the insulation and up to $2,000 for the heat pump. Similarly, you could combine a heat pump installation with window/door replacements. In that scenario, the $2,000 credit for the heat pump could be combined with tax credits up to $600 total for the windows/skylights plus $500 for two or more doors. If you replace your water heater the following year, you would be eligible for another 30% tax credit, up to $2,000 plus up to $600 if you need an electric panel upgrade to accommodate the new water heater.

Qualified geothermal heat pump property:

Equipment which:

1. (1) uses the ground or ground water as a thermal energy source (to heat), or as a thermal energy sink (to cool) a home, and
2. (2) is ENERGY STAR certified.

Qualified geothermal heat pump property expenditure:

An expenditure for qualified geothermal heat pump property installed on or in connection with the taxpayer's residence.

Existing homes and new construction qualify. Both principal residences and second homes qualify. Rentals do not qualify.

This system must be installed in connection with a dwelling unit located in the United States and used as a residence by the taxpayer. The home served by this system does not have to be the taxpayer's principal residence.

A principal residence is the home where you live most of the time. The home must be in the United States. It can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home.

Gas storage water heaters

ENERGY STAR certified models are eligible as follows: ≥ 0.81 UEF for tanks less than 55 gallons and ≥ 0.86 UEF for tanks greater than or equal to 55 gallons.

Tankless gas water heaters

ENERGY STAR models with ≥ 0.95 UEF are eligible.

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits. The overall total limit for an efficiency tax credit in one year is $3,200. This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners. Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)

Principal Residence Owners

Must be an existing home & your principal residence. New construction and rentals do not apply.

A principal residence is the home where you live most of the time. The home must be in the United States. It can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home.

Given the way the annual aggregate limits are structured, it may be prudent to spread your improvements over a few years. If your heating or cooling system is old, and you are considering a new air source heat pump, it is always wise to optimize your attic insulation first, so you don’t pay for more heating and cooling than you actually need. Making these upgrades together in one year would allow you a tax credit of up to $1,200 for the insulation and up to $2,000 for the heat pump. Similarly, you could combine a heat pump installation with window/door replacements. In that scenario, the $2,000 credit for the heat pump could be combined with tax credits up to $600 total for the windows/skylights plus $500 for two or more doors. If you replace your water heater the following year, you would be eligible for another 30% tax credit, up to $2,000 plus up to $600 if you need an electric panel upgrade to accommodate the new water heater.

• Form 5695 Instructions: https://www.irs.gov/pub/irs-pdf/i5695.pdf
• Form 5695: https://www.irs.gov/pub/irs-pdf/f5695.pdf