While it can deliver substantial energy savings, installing a new, high efficiency HVAC system can be an expensive endeavor. Luckily, many homeowners are eligible for tax credits and/or rebates that help make this cost more manageable. When you purchase energy-efficient HVAC equipment, you may qualify for various home energy efficiency tax credits that are available through the federal and state governments as well as rebates administered by local utilities. After reading through this simple guide, consult with a tax professional to understand how to make the most of your available incentives when upgrading your home’s HVAC system.
Federal HVAC Incentives
The Inflation Reduction Act of 2022 extended federal tax incentives for energy-efficient home improvements, which were initially established in the Energy Policy Act of 2005, through 2032. These include credits for installing ENERGY STAR-certified and other highly efficient equipment such as heat pumps, central air conditioners, furnaces, and water heaters. Many of these credits allow taxpayers to claim 30% of the total project cost up to a specified maximum amount. There are also several other home energy-efficiency tax credits available, such as for insulation, windows, doors, wind or solar systems, fuel cells, and home energy audits.
The Inflation Reduction Act also provides funds for additional state-administered home energy efficiency rebate programs that are not yet up and running. You can sign up with the Colorado Energy Office to receive updates on these programs as information becomes available.
Colorado Heat Pump Tax Credits
Heat pumps provide both central heating and air conditioning. Heat pumps can help you efficiently beat Colorado summer heat and stay cozy throughout the winter. A new Colorado State tax incentive went into effect on January 1, 2023 for the purchase of heat pumps and heat pump water heaters. It provides for a tax credit of 10% of the equipment cost as well as a sales tax exemption of 2.9%. This adds up to a 12.9% discount off the total price of equipment. The tax credit does not include installation, but if an electrical panel upgrade is needed for the pump or water heater installation, the tax credit can apply to this. It is important to note that currently, this tax credit and the sales tax exemption is valid only for purchases made in 2023 or 2024. However, the legislature could extend it into future years.
Colorado Utility Rebates
In addition to tax incentives, you may be able to claim rebates from your local utility company. Rebates are typically a quicker way to get your money returned than a tax credit, and they apply regardless of your tax picture. Your local utility company can provide information about what rebates you may be eligible for. You can also check out this database of programs in Colorado for an overview.
Here at Pacific, our experienced professionals are always available to help you select HVAC equipment that qualifies for specific tax credits and rebates. If you’d like to learn more about our HVAC services, subscribe to our blog today!