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Frequently Asked Questions about Tax Benefits for Heating and Cooling Equipment

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If you are thinking about purchasing new heating or cooling equipment, 2016 is a great year to do so. This is because the nonbusiness energy property tax credit, or 25C credit, was extended until December 31, 2016. Purchasing qualifying items until this deadline will help you get a tax credit, making the item more affordable. However, you may have many questions about this. Here are a few frequently asked questions about this tax benefit when purchasing heating and cooling equipment.

What Is a Tax Credit?  

When you hear the term tax credit, you may not understand what it is or how it can affect your taxes. A tax credit helps offset the amount of taxes you owe. So, for example, if you owe $1,000 in taxes and you have a $500 tax credit, you will only owe $500. Some tax credits are refundable. This means that if you owe $100 in taxes and have a $500 tax credit, you will receive a refund of $400 from the IRS. However, the 25C credit is not refundable, so you will need to have a balance owing on your taxes to maximize this credit.

How Much Can You Receive When Buying a Qualifying Item?

A qualifying heating or air conditioning unit can give you a $300 tax credit. You can receive up to $500 back in tax credits if you purchase multiple qualifying energy-efficient items. In order to claim the 25C residential tax credit, the items you purchase will need a manufacturer's certification stating that the product you are buying meets the energy-efficiency requirements set forth by the government in order to qualify for the tax credit. The company that you buy the heating or air conditioning appliance from will be able to provide you with this certificate.

What Items Are Considered Qualifying Items?

If you are shopping for new heating or cooling equipment, you will want to know the items that qualify for the credit. The include the following: 

  • advanced main air circulating fans
  • boilers
  • furnaces
  • package air conditioners
  • package heat pumps
  • split system air conditioners
  • split system heat pumps

How Do You Know If an Item Is Considered Energy Efficient?

In order to qualify for the 25C tax credit, the item you are purchasing must meet energy-efficiency standards set forth by the government. After all, the point of the credit is to entice people into buying more efficient models. Appliances marked with the ENERGY STAR rating qualify for this credit. This rating is awarded by the US Environmental Protection Agency to products that meet strict energy efficiency guidelines. However, an item not marked with this rating may also qualify. Air conditioning and heating units that qualify for the credit must have at least a 14 to 16 SEER rating and at least a 12 to 13 EER rating, depending on the type of product.

Can You Combine the Tax Credit with Manufacturer's Rebates?

Yes, you are able to combine the tax credit with manufacture's rebates. These are two separate programs and one does not affect the other. If you are in the market for a new heating or air conditioning unit, looking for a product that has a manufacturer's rebate as well as one that qualifies for the 25C tax credit can allow you to get a great deal on the new appliance you need.

Many homeowners are not aware that they can receive a tax credit if they purchase qualifying heating and air conditioning units. If you are in need of a heating or cooling unit, learning about the 25C tax credit and getting answers to the questions you have will help you learn what the credit is, what qualifying items are, and how much of a credit you can receive. For more information about this topic, speak with a heating and air conditioning company.