Tax Credit

What is the tax credit?

Purchasers of highly efficient heating, cooling, and water heating equipment can take tax credits of up to $300 for purchasing qualifying equipment, as detailed below. These credits are available for systems placed in service from January 1, 2006, through December 31, 2007. There is a $500 cap on the credit per home, including the amount received for insulation, windows, air and duct sealing as described in the previous section.

What types of equipment qualify and for how much?

• High-efficiency gas, oil, and propane furnaces and boilers: $150
• High-efficiency central air conditioning units, including air-source and ground-source heat pumps: $300
• High-efficiency fans for heating and cooling systems: $50
• High-efficiency water heaters, Tankless Water Heaters including heat pump water heaters: $300

Where must the equipment be used?

Exact rules will be developed by the IRS. Our understanding is that equipment is eligible if installed in a new home or an existing home used as the taxpayer’s principal residence. If installed in a new home, the IRS likely will not allow the taxpayer to “double-dip” with the new homes credit; however, if the builder qualifies for the new home credit without the use of the efficient furnace, air conditioner, or water heater, the home buyer likely may take the additional credit.

What are the efficiency requirements to qualify for the credits?

Manufacturers and retailers should be able to help you tell whether a specific product qualifies.

The qualification specifications are:

• Furnaces and boilers: Annual Fuel Use Efficiency (AFUE) 95 or higher
  
  
• Central air conditioning units:
  
  • Central air conditioning units must meet the highest tier standards set by the Consortium for Energy Efficiency (CEE), which require a Seasonal Energy Efficiency Ratio (SEER) of 15 and an Energy Efficiency Ratio (EER) or 12.5. SEER measures performance throughout the cooling season, EER measures performance on a very hot day. For information on the CEE specification see www.cee1.org/resid/rs-ac/res-ac_specs.pdf
  • Air-source heat pumps must have a Heating Seasonal Performance Factor (HSPF) 9 or greater, SEER 15 or higher, and EER 13 or higher
  • Ground-source heat pumps must meet the following criteria (the same criteria as for Energy Star):
    • Closed-loop systems—14.1 cooling EER and 3.3 heating Coefficient of Performance (COP)
    • Open-loop systems—16.2 EER and 3.6 COP
    • Direct-expansion systems—15 EER and 3.5 COP
      
      In addition, ground-source heat pumps must include a desuperheater (which preheats water for a water heater) or an integrated water heating system.
      
      
• Fans for heating and cooling systems: fan uses no more than 2% of total heating system energy use, as defined by DOE test procedure. For more information, see:
  www.gamanet.org
  
  
• Water heaters:
  • Gas or propane water heaters—Energy Factor of at least 0.8. The only models that meet this standard currently are tankless water heaters and some systems that combine both space and water heating.
  • Heat pump water heaters—Energy Factor of at least 2.0

What do I need to do to qualify for the incentives?

Details will be spelled out in the IRS rules and forms. We will post a link as soon as this information is published. At a minimum taxpayers will need information on when the equipment was placed in service and information on the efficiency of the equipment in order to demonstrate that the equipment meets the qualification criteria.

For More Information:

Where can I find out more about qualifying products?

• Furnaces and boilers: Information on qualifying equipment can be found at:
  www.energystar.gov/index.cfm?c=furnaces.pr_furnaces
  www.energystar.gov/index.cfm?c=boilers.pr_boilers
  www.eere.energy.gov
  www.aceee.org/consumerguide/topfurn.htm
  www.gamanet.org
• Central Air Conditioning Units and Heat Pumps: Information on qualifying equipment can be found at the Consortium for Energy Efficiency (for air conditioners and air-source heat pumps) and Energy Star (for ground-source heat pumps) web sites. ACEEE has general information as well as a list of the most efficient products. DOE also has general information:
  www.ceehvacdirectory.org (look for equipment meeting the "Advanced tier")
  www.energystar.gov (ground-source heat pumps)
  www.aceee.org/consumerguide/topcac.htm
  www.eere.energy.gov (heat pumps)
  www.eere.energy.gov (cooling systems)
  www.geoexchange.org (ground-source heat pumps)
• Fans for Heating and Cooling Systems:See the Gas Appliance Manufacturers Association (GAMA) Directory (units with an "e" have efficient fans)
  www.gamanet.org
• Water Heaters: Information on which equipment meets the required Energy Factor levels can be found in a directory published by GAMA. More general information can be found on the ACEEE and DOE websites:
  www.gamanet.org
  www.aceee.org/consumerguide/topwater.htm
  www.eere.energy.gov

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