All About HVAC Tax Credits

Purchasing a new HVAC system for your home is a significant investment. However, you can try to reduce the costs in various ways. One of them is to take advantage of tax credits designed to promote more efficient residential HVAC systems. If you purchase an eligible HVAC system, you might be able to reclaim some of your money through credits and rebates. Here’s everything you need to know about HVAC tax credits and how they work.

Available Federal HVAC Tax Credits

The federal tax credits that cover energy-efficient furnace and AC upgrades come courtesy of the 2022 Inflation Reduction Act (IRA). That law authorized tax credits that helped lower the cost of installing efficient ACs, furnaces, and heat pumps. To take advantage of them, you must purchase a system that qualifies.

You can claim up to 30% of the cost of a qualifying central AC installation or a new furnace, up to a $600 maximum. You can also claim up to 30% of the price of a qualifying air-source heat pump, which has a more generous maximum credit of $2,000.

The IRA tax credits for ACs, furnaces, and heat pumps aren’t refundable. That means you can only claim them against your actual tax liability. Plus, you cannot carry partial credit to a future tax year. You may wish to consult a tax specialist to maximize the benefits. They may advise you to adjust your tax withholding to avoid losing out.

Qualifying Central AC Systems

Not every new central AC system will qualify for an IRA tax credit. The law states explicitly that the system 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.”

For 2025, split-system ACs need SEER2 ratings of 17 or higher and EER2 ratings of 12 or higher to qualify. Split systems refer to ACs with outdoor condensers and indoor air handlers. They’re the most commonly used central AC systems in homes today.

The minimum efficiencies are lower if you’re purchasing a packaged system and want it to qualify. Those systems need SEER2 ratings of 16 or higher and EER2 ratings of 11.5 or higher.

Qualifying Gas Furnaces

Certain high-efficiency gas furnaces also qualify for an IRA tax credit. In their case, you’d need to purchase a furnace with an AFUE rating of 97 or higher. Furnaces capable of achieving those ratings are all condensing furnaces. They feature a secondary heat exchanger to capture more heat from combustion.

Qualifying Air-Source Heat Pumps

Fortunately, you can easily identify air-source heat pumps that qualify for an IRA tax credit. Any system certified by ENERGY STAR in its most efficient tier will qualify. Also, any air-source heat pump in that efficiency category qualifies. So, whether you’re looking for a ducted heat pump system or a ductless mini-split, you’ll easily find an eligible model.

Geothermal Heat Pump Tax Credits

One type of system could earn you a much larger tax credit: a geothermal HVAC. They’re the most efficient type of system available today. However, they come with some very high upfront costs. In recognition of that, the IRA provides a tax credit worth up to 30% of their price, too. However, two significant differences exist between it and the other aforementioned credits.

One difference is that there’s no maximum credit amount. So, if your geothermal system costs $30,000, your tax credit is worth $9,000. The other difference is that you can carry forward a geothermal HVAC tax credit. That guarantees you will reap its maximum benefit, even if it takes several tax years to do it. Best of all, any ENERGY STAR-rated geothermal HVAC qualifies for the credit.

Your Local Efficient HVAC Experts

Since 2009, Sheldon's Heating, Air Conditioning & Plumbing has offered high-efficiency HVAC solutions to Riverside home and business owners. We sell and install furnaces, central ACs, and heat pumps and are a Carrier Factory Authorized Dealer. Our HVAC experts can help you choose a system that qualifies for any available tax credits. We can also help you navigate the rebate programs that may apply to your purchase. We also offer financing options on approved credit if you need help paying for a new, efficient HVAC.

So, when you’re ready to upgrade your HVAC system in Riverside, contact Sheldon's Heating, Air Conditioning & Plumbing immediately!