How Does the Federal Tax Rebate Work for Gas Furnaces?

If you bought a high-efficiency gas furnace in 2011 you may be eligible for a federal tax credit.  This gas furnace guide discusses the program and how it works.

Tax Credit Qualifying Furnaces

A common misconception is that all Energy Star furnaces qualify for the tax rebate.  This isn’t the case.  The guidelines exceed the Energy Star minimum 90% AFUE (annualized fuel usage efficiency).

Gas furnaces must be at least 95% efficient to qualify. Furnaces with this level of efficiency are made by almost every manufacturer.  They are more expensive than 90% or 80% efficient furnaces and are ideally suited to cooler climates.  In warmer climates, choosing a less efficient furnace may be more cost-effective when weighing equipment costs versus energy costs, even with the potential tax credit factored in.  If winters are cold where you live, choosing a qualifying furnace will cost less due to the credit and will save you money all heating season with lower energy bills.

Other Federal Energy Tax Credit Qualifications

The gas furnace must be installed by the end of 2011.  It must be installed in your primary residence.  Rental properties or vacation homes do not qualify.  The home must be an existing home.  Furnaces in newly constructed homes do not apply.

Amount of the Federal Energy Tax Rebate

The amount of the tax credit is $150 for a gas furnace.  In recent years, the amount has been a percentage but the rule was changed for this year to a set amount.  Keep in mind that this rebate is a tax credit, not a reduction.  As a tax credit, the $150 comes off the top of your tax liability rather than simply reducing the amount on which you pay taxes by $150 – as with a deduction.

How to Apply for the Federal Tax Credit for Gas Furnaces

You must complete the 2011 version of IRS form 5695 and file it with your 2011 tax return.  Then, on the 1040 form, the amount of $150 must be entered on the proper line showing the deduction.  Be sure to keep your receipt for the furnace along with the manufacturer’s certification statement listing the energy efficiency level of the furnace.  These documents don’t have to be filed with your tax return but should be kept in case the tax rebate is questioned.

Summary

While the tax rebate for 2011 isn’t as large as in recent years, it may still be a good idea to purchase and install a qualifying furnace.  This is especially true for homeowners who use their furnace heavily.  In addition, some state and local tax credits are available, so check with your local taxing authorities.  Many utility companies are offering rebates on energy for the installation of qualifying furnaces too.

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