Replacement Heat Pump Tax Credit

[Lewis Clark]

I'm trying to decide whether to replace my heat pump now while federal tax credits are available, or wait in the hope the system will last an additional year or two.

The tax credit information below is a bit confusing.
https://www.energystar.gov/about/federal_tax_credits/non_business_energy_property_tax_credits

Our air handler is in the garage and the condenser is outdoors, so we have a split system. Based on the information here, it seems like we would quality for the $300 tax credit for a new heat pump, and an additional $300 for a new condenser as part of the central air conditioning system. As long as the new system meets the energy efficiency requirements, of course.

Am I reading this correctly?

Thanks in advance for any guidance you can share!

 

[Katsmeow]

Huh! I didn't know about this. We put in a complete new heat pump system and condenser and a hybrid water heater in 2019. If you are reading it correctly, then we could have gotten a tax credit, but we didn't....

 

[SecondCor521]

Huh! I didn't know about this. We put in a complete new heat pump system and condenser and a hybrid water heater in 2019. If you are reading it correctly, then we could have gotten a tax credit, but we didn't....

You can amend your 2019 return to get the tax credit. I think this particular one might be nonrefundable, so you'd need enough tax liability to have it be of benefit.

OP, this is one of those credits that might be going away and gets extended or not every year by Congress. I think it goes down by a few percentage points each year and is currently due to sunset in the next couple of years, so you probably want to figure those aspects into your thinking.

OP, I always like to go straight to the source, so I'd look at the IRS instructions for Form 5695 to see if you qualify:

https://www.irs.gov/pub/irs-pdf/i5695.pdf

It's not clear if the $500 limit for all improvements after 2005 would apply to your situation or not, but it may.

 

[Katsmeow]

You can amend your 2019 return to get the tax credit. I think this particular one might be nonrefundable, so you'd need enough tax liability to have it be of benefit.

Thanks, I'm going to look into it. I did have tax liability so it would be worth it.

 

[Lewis Clark]

OP, I always like to go straight to the source, so I'd look at the IRS instructions for Form 5695 to see if you qualify:

https://www.irs.gov/pub/irs-pdf/i5695.pdf

It's not clear if the $500 limit for all improvements after 2005 would apply to your situation or not, but it may.

That's what I love about government forms. They are often not clear. : (

Thank you very much for sharing this. I think I'd quality for a $300 tax credit. Might as well do it now that the cooling season is about over and the heating season is not yet here.

 

[T-Minus]

Great information - thank you so much! We just put in two (2) new Trane high-efficiency heat pump systems, and I think we’ll qualify for $300 or $500. Assuming a 25% tax rate, that’s a net savings of $75 to $125. I’d call that a WIN for today.

EDIT: It’s a Tax Credit! That means it’s subtracted from the total tax owed...NOT from the income (pre tax) side. This is even better!!!

 

[T-Minus]

FYI: this was found on the Intuit Turbotax website https://turbotax.intuit.com/tax-tips/going-green/what-is-the-irs-form-5695/L9D6ARQ0p

Reducing tax basis

Claiming either of the tax credits requires you to reduce the tax basis of your home by an amount equal to the total of both credits you claim. The tax basis of your home is essentially the price you paid for it or the cost to construct it.

Basically, lowering your basis will have the effect of increasing the gain (or reducing the loss) you’ll have to report when you sell the home. However, since the tax law excludes up to $250,000 of gain from the sale of a home (or $500,000 for couples filing jointly), the basis reduction is unlikely to have any adverse tax consequences for you. Regardless of the outcome, it’s a good idea to retain a copy of your Form 5695 until you sell the home.

 

[Koolau]

Where's ERD50 now that we need him? YMMV