Tax Credits For Energy-Efficient Furnaces
It’s no secret that heating bills can chew up a big chunk of the household budget, especially here in colder parts of the Midwest. Homeowners in Minnesota, Wisconsin, Iowa—you name it—are always looking for ways to cut costs.
One big question we hear often at SouthSota One Hour Heating & Air Conditioning is: “Are there tax credits for upgrading to an energy-efficient furnace?”
Short answer? Yes. But the details matter, and those details can save you hundreds, maybe thousands, if you know where to look and how to file.
Why Tax Credits Matter in the First Place
Let’s pause for a second. What’s the difference between tax deductions and tax credits? They’re not the same. A deduction reduces the amount of income you’re taxed on. A credit? That’s dollar-for-dollar money off your tax bill. So if you owe $1,000 and you qualify for a $300 credit, now you owe $700. That’s why homeowners get excited about furnace upgrades—they can pay off quicker thanks to those credits.
Energy Efficient Home Improvement Credit (25C)
This is the big one under the Inflation Reduction Act. If you install a qualifying high-efficiency furnace, you may claim up to 30% of the cost, capped at $600. That applies to the equipment, not the labor, though labor still affects your bottom line.
few things to note:
- The furnace must meet specific energy efficiency standards (usually a high AFUE rating).
- There’s an annual $1,200 limit for all eligible home improvements combined. So if you’re also upgrading insulation or windows in the same year, everything adds up to that cap.
- You need documentation from your installer that the unit qualifies. Don’t toss the paperwork.
I’ve had customers who almost lost their credit because they didn’t save the manufacturer’s certificate.
High-Efficiency Electric Furnaces and Heat Pumps
Here’s where it gets interesting. While most of us think “gas furnace,” the federal incentives are pushing hard for electric and heat pump technology. Heat pumps qualify for bigger tax credits—up to $2,000 in some cases. So if you’re thinking about a hybrid system or ditching gas altogether, the credit might soften that upfront sticker shock.
Local and State Programs
Dallas may have its quirks, but up here in SouthSota, we see homeowners tapping into utility rebates too. Many local utilities offer additional rebates for energy-efficient furnaces on top of federal tax credits. Sometimes that’s $150, sometimes $400 or more. Add in the federal credit, and the math starts looking pretty good.
I tell folks to always check their utility provider’s website. Rebates change every year, and some run out fast because funding is limited. One customer missed out by a week—timing matters.
Why Efficiency Ratings Matter
Here’s a quick refresher: AFUE stands for Annual Fuel Utilization Efficiency. It’s a percentage that tells you how much of your fuel actually becomes heat versus what is wasted.
- Standard older furnaces: 60–70% AFUE.
- Mid-range modern furnaces: 80–89% AFUE.
- High-efficiency models: 90–98% AFUE.
To qualify for most tax credits, your furnace has to land in that high-efficiency zone. A 95% AFUE furnace converts 95 cents of every fuel dollar into heat. That adds up over 10 or 15 winters.
Paperwork and Filing Tips
Nobody loves paperwork, but here’s what you’ll need for tax season:
- Manufacturer’s certification statement
- Receipts for the furnace purchase
- Installation documents
- IRS Form 5695 (Residential Energy Credits)
I’ve had neighbors call in a panic every April because they didn’t keep their receipts. Don’t do that to yourself. Start a simple folder—digital or paper—and drop everything in there the day your furnace gets installed. Future-you will be grateful.
The Bigger Picture: Comfort and Payback
Yes, tax credits help with the upfront cost. But there’s more here. High-efficiency furnaces often pay for themselves in lower energy bills. One homeowner told me their monthly gas bill dropped by $60 after their upgrade. Over 10 years, that’s more than $7,000 saved—and that’s before factoring in the tax benefits.
And comfort? Night and day. Rooms heat evenly, noise levels drop, and air quality improves. A furnace isn’t just numbers on a bill. It’s how your home feels at 6 a.m. on a January morning.
A Personal Note
I remember one installation last December where the homeowner said, “I don’t care about the tax credits, I just want to stop wearing three layers inside my own house.” We installed a 96% AFUE system, and yes, they got their $600 credit, but more importantly, they called me in February to say they were finally comfortable. Sometimes the credit is the bonus, not the main prize.
Why Call a Pro
This is where our team at SouthSota One Hour Heating & Air Conditioning steps in. We don’t just install a box. We match the right system to your home’s size, your budget, and your long-term goals. And yes, we guide you through the rebate and tax paperwork too. Because let’s be honest—those forms can be confusing if you don’t fill them out every day.
FAQ
How much can I get back with furnace tax credits?
Up to $600 for qualifying high-efficiency furnaces under the 25C program. Heat pumps may qualify for up to $2,000.
Do tax credits apply to installation costs?
No. Credits are based on equipment cost only, though installation matters for performance.
What if I already claimed tax credits this year for windows or insulation?
All qualifying improvements count toward the same $1,200 annual cap. You can’t double dip beyond that.
Do I need a professional installation to qualify?
Yes. DIY installations generally don’t meet the requirements for tax credits.
Ready to Upgrade?
If your furnace is older, inefficient, or breaking down every winter, now’s the time to consider an upgrade. Between lower bills, better comfort, and federal tax credits, the payoff is real.
Call SouthSota One Hour Heating & Air Conditioning today. We’ll walk you through your options, help you find qualifying systems, and make sure you don’t leave money on the table. Because staying warm shouldn’t be complicated.
