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Are New HVAC Units Tax Deductible?

Are New HVAC Units Tax Deductible?

Are New HVAC Units Tax Deductible?Are you building a new home? How about upgrading your old HVAC system? As the world continues to go green, the federal government has passed legislation that provides homeowners with a deduction for new HVAC Units.

Understanding the deductibility of new HVAC units, the credit amount, and how to claim this tax credit can help you offset the costs associated with upgrading your HVAC.

Are New HVAC Units Tax Deductible?

Most new HVAC units are tax deductible. Repairs to existing HVAC units do not qualify for a tax deduction, but upgrading or replacing your existing system can qualify. There are different credits for the 2022 and 2023 tax years following the passage of the Inflation Reduction Act.

Homeowners that are upgrading or replacing their HVAC can claim a Residential Energy Credit of up to $500 in 2022. This is a lifetime cap. If you claimed the maximum credit in a prior year, you can’t claim any additional improvements.

However, starting January 1, 2023, homeowners can take advantage of the Energy Efficient Home Improvement Credit. This is a credit equal to 30% of the amount paid for qualifying expenses. Unlike the Residential Energy Credit, this credit can be claimed each year.

What Qualifies for the Tax Credit?

The Inflation Reduction Act of 2022 gives homeowners the ability to receive a credit for most energy-efficient HVAC upgrades. Qualifying expenses for the Energy Efficient Home Improvement Credit include:

  • Qualified energy efficiency improvements placed in service during the tax year.
  • Residential energy property expenses incurred during the tax year.
  • Home energy audits conducted during the tax year.

Before you hire a contractor, be sure you are purchasing Energy Star-rated equipment to qualify for a tax credit. Keep in mind that other expenses associated with your HVAC upgrade can also contribute toward your tax deduction. For example, electrical upgrades to house the new system and labor costs associated with the installation can be lumped together with your qualifying HVAC expenses.

How Do You Claim the Credit?

Are New HVAC Units Tax Deductible?Residential Energy Credits are claimed by filing Form 5695 on the individual tax return. For returns filed in 2022, you can claim 10% of expenses up to $5,000, which equates to a $500 credit.

For tax years 2023 and beyond, the Energy Efficient Home Improvement Credit will still be claimed on Form 5695. The maximum annual credit that you can claim is $3,200. This is broken down into a $1,200 aggregate tax credit for all building envelope components and a $2,000 aggregate credit for HVAC and other energy-efficient upgrades.


Are you considering upgrading your HVAC? If so, there has never been a better time with the Inflation Reduction Act expanding your tax advantages.

Before you hire an HVAC contractor, be sure they offer equipment that qualifies for these tax credits. This is why working with our team at 365 Mechanical can make all the difference.

We work with you to find the equipment that maximizes your tax credits but still remains within your budget. Reach out to a team member today to schedule a consultation.

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