Tax Credits for Replacing Heating and Cooling Systems

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Published: January 23, 2012
By: Suzanne Cosgrove
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If you installed an energy-tax-credit-eligible heating and cooling system in 2011 before you sang Auld Lang Syne, here’s what you need to do to collect.

Effort: Low 1 day (research)
Saves: Med $200/yr (energy bills)
Investment: Med $3,500 (HE furnace)

For 2011, the government allowed a suite of useful, though less generous, energy tax credits (compared with 2009-2010) for heating and cooling systems and related energy-efficiency improvements.

The basics:

Lifetime credit max of 10% of costs, up to $500 for all energy improvements combined.

If you got $500 or more back during 2009-2010, you get nothing for any 2011 improvements.

File IRS Form 5695 with your 2011 returns. This can be tricky, so pay attention to the details.

Although there is a $500 overall ceiling, some improvements have individual limits below $500:

$50 for any advanced main air-circulating fan.

$150 for any qualified natural gas, propane, or oil furnace or hot water boiler.

$300 for any qualified item of energy-efficient building property, as specified by the IRS. In previous guidance, this category included certain approved electric and geothermal heat pumps, central air conditioning systems, and natural gas, propane, or oil water heaters.

Installation costs are generally covered.

Limits and deadlines:

You can’t claim more than a $500 credit for the year.

Save manufacture certifications and receipts in case you need them for filing.

You must have installed a relevant heating and cooling system by Dec. 31, 2011.

The Energy Star site has posted new guidelines on what heating and cooling systems are covered. It’s your safest bet for information on which kinds of systems and individual products get you the credit.

Don’t rely solely on contractors who may not know the details of the energy tax credit program or who promise their products will get the credit in order to make a sale.

As of January 2012, the feds haven’t extended the energy tax credits for heating and cooling systems beyond 2011.

Next: What efficiency means to your wallet

Suzanne Cosgrove

Suzanne Cosgrove, who spent nine years as an editor at the Chicago Tribune, has written for a number of business and real estate publications. She has a 90-year-old house and a long list of home-improvement projects.

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