If you’ve been in your home for a while or just purchased a new dwelling, there may be some household items that need to be upgraded. Some of these items can be quite costly such as a new furnace, central air conditioning system or roof. Fortunately, the IRS does provide a tax credit for some of the larger upgrades that you may make in your home — a central air-conditioning system is one of these. The criteria for qualifying for that tax credit is that the system must meet certain energy efficiency guidelines.
Qualifying Air Conditioning Systems
Having the opportunity to claim a tax credit on your taxes when you install a qualifying air conditioning system is a great way to reduce the cost of this large investment. However, it’s important to purchase a system that qualifies. Two criteria are necessary if you want to qualify for a tax credit:
Energy Efficiency Requirements – When you install a new central AC system in your home, it must be rated at the highest energy efficiency tier to qualify for a tax credit. Energy efficiency tiers are determined by the Consortium for Energy Efficiency, which is made up of efficiency program administrators — provincial or state energy offices, local utilities, or organizations set up by the government — from the US and Canada.
Must Be Primary Residence – You can only receive a tax credit for a new AC system when it is being installed in your primary residence.
What Is This Tax Credit Worth?
If you install a new AC system in your primary residence that meets energy efficiency requirements, the maximum amount of credit that you can receive back is $300. If you decide to install other pieces of property that meet energy efficiency improvement guidelines, the maximum amount of credit that you can get back is $500 during the timeframe of 2006 to 2017.
Claiming Your Energy Efficient Property Tax Credit
To claim your tax credit when you are completing your federal tax return, you will need to use Form 5695. This form allows you to enter the property costs of qualifying energy-efficient improvements. When you are using a new air-conditioning system to reduce your taxes, you can also include other expenses that are related to your AC unit such as assembly of the unit, preparation and installation.
You must use Form 1040 when you include a Form 5695. The IRS does not allow you to file a 1040EZ Form or 1040A Form if you also want to claim energy efficiency tax credits. When you choose to claim a tax credit, you do not have to itemize deductions. The IRS allows you to take the standard deduction.
Cost Of A New AC Unit
The cost of a new central air-conditioning system can run between $500-$4000. The final expense can only be determined after receiving an estimate for the cost of installation, ductwork or other installation items that are needed. It just makes sense to take advantage of the $300 maximum credit the IRS allows for energy-efficient AC units.