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The 25C Energy Tax Credits - Going, Going, Almost Gone

Congress approved the 25C energy tax credits in January's fiscal cliff deal, making them retroactive to 2012 after they had expired in 2011. The credits now have a final expiration date of Dec. 31. You can deduct 10 percent of the cost of heating and cooling systems that meet the efficiency requirements of the 25C program. The cap for a heat pump or air conditioner is $300. Boilers and furnaces have a cap of $150. But the time to act is now, as the credits will soon be gone. Here's a look at the program.

What Is the 25C Government Tax Credit?

The 25C tax credits are available for primary residences. New homes, rental properties and second homes do not qualify. The minimum energy efficiency requirements for these systems depend on the type installed. They must meet the Energy Star program minimums. The requirements are:

  • Split systems: Air conditioners and heat pumps with separate condensers and blowers are called split systems. The condenser is outside the home, and the blower is inside. The seasonal energy efficiency ratio for an air conditioner must be 16 or greater, while a heat pump must have a SEER of 15 or better. In addition, the heat pump must have a heating seasonal performance factor of 8.5 or more. 
  • Packaged systems: In these systems, all the components are housed in one unit, which is located outside. The minimum SEER for these air conditioners and heat pumps is 14. The HSPF for heat pumps must be 8.0 or better. 

Does My New Heating and AC System Qualify?

To qualify for the energy tax credits, heating systems must have an annual fuel utilization efficiency of 95 percent or better. This minimum applies to both forced-air furnaces and boilers for radiant heating systems. A combustion heating system that has an AFUE of 95 wastes just 5 percent of the fuel it uses.

Heating and cooling systems aren't the only energy-efficient upgrades that qualify for the credits. 

  • You can earn a 10 percent tax credit, up to $500, for insulation and air sealing improvements. Qualifying insulation products include batt, roll, blown-in, rigid board and spray-foam. Weatherstripping, caulk and house wrap also qualify. 
  • You can receive the same credit if you replace your roof with a more energy-efficient system. The replacement must be either a metal roof with pigmented coating or an asphalt roof with cooling granules.
  • You can receive a $300 credit if you purchase a qualifying gas, oil or propane water heater or an electric heat pump water heater. 
  • Windows, doors and skylights qualify for a $500 credit together. The credit for windows is $200. The windows must be Energy Star units, and installation costs are not covered.

Although the 25C tax credits expire at the end of the year, you can still take advantage of credits for sustainable systems. The credits for geothermal, wind and solar systems expire in 2016.  

  • Water-to-air, water-to-water and direct-expansion geothermal installations qualify for the credit. Both closed-loop and open-loop systems qualify. 
  • Small wind turbines must have a nameplate capacity of no more than 100 kilowatts. The credit includes installation costs. Unlike the 25C tax credits, these can be taken for new homes that are primary residences. 
  • Both solar water heaters and solar panels qualify for the federal credits. A solar water heater must be certified by the Solar Rating and Certification Corp. or another government-endorsed entity. It cannot be used to heat a swimming pool or hot tub. You can take a tax credit of 30 percent of the cost, up to $500 per five kilowatts of power. These credits can also be taken for new homes that are primary residences. 

Have questions about the tax credits? Contact the professionals at We can explain the program in detail and help you choose the system that's right for your home and qualifies for the credit. We provide exceptional HVAC services to homeowners in the Chicago area, southwestern Michigan and northwestern Indiana, and we'd like to help you with all of your home-comfort needs.

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