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Federal Tax Credits for 2020

Many factors are considered when making substantial investments in durable goods, like the equipment used for heating and cooling. Tax credits can be important because they may help offset initial costs. Here are the federal tax credits for heating and cooling equipment in 2020:

HVAC “25C” tax credits are available for high-efficiency heating and cooling equipment. Those credits were renewed by the U.S. government in December 2019.

The 25C tax credit includes:

Reimbursement of up to 10% of the cost, up to $500; or a specific amount from $50 to $300;

A $300 maximum credit for qualifying high-efficiency equipment;

A $150 maximum credit for Furnaces and Boilers.

High-Efficiency Heating and Cooling Equipment

There are certain equipment types that qualify for the 25C federal tax credits, and they are:

Central Air Conditioners

Heat Pumps

Packaged Units

Ductless Mini-Split Systems

Furnaces and Boilers

The qualifying high-efficiency equipment must be installed in your permanent residence in the United States; rental property and new construction do not qualify. The 25C tax credit has additional limitations; as a homeowner, you are advised to consult with a tax professional for applicability.

Renewable Energy Tax Credits

Renewable energy tax credits for fuel cells, small wind turbines, solar energy systems, and geothermal heat pumps feature a gradual step down in the credit value. 

Tax Credit: 

  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022

Expires:  December 31, 2021

What is the maximum amount of Federal tax credits for high-efficiency heating and cooling equipment homeowners can expect in 2020?

The maximum 25C high-efficiency heating and cooling equipment Federal tax credit reimbursement is $300.

The renewable energy tax credit for 2020 is 30% of the cost of the geothermal or other qualifying system.

When will the program expire?

The 25C tax credit extends through12/31/2020.

The renewable energy tax credit program is finished at the end of 2022.

Does the renewable energy tax credit change?

No, but it is structured as a step-down program. The percentages through the end of the Federal geothermal heat pump tax credit program are:

  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022

What is the maximum amount that can be saved?

The maximum of the renewable energy tax credit is 30% of expenditures on geothermal, solar, small wind, renewable fuel cell, or other qualifying technology; up to $300.

What do geothermal heat pump systems cost?

Less-expensive systems start at about $8,500, using horizontal, closed loops.

Other systems with deep vertical wells may cost more than $25,000.

The average cost of geothermal systems is around $18,000.

On an $18,000 system, the homeowner’s 30% tax credit would equal $5,400. Note this is not a deduction – a credit reduces the tax burden by that amount.

Where can information about the Residential Renewable Energy Tax Credit be found?

This page has information about the program and details about each type of qualifying equipment.

Is there an IRS form to file?

Yes. Here is a link to IRS form 5695 for the current tax year.

Here is a link to the instructions for Form 5695.

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