What Appliances Qualify for an Energy Tax Credit in Los Angeles?

If you live in the Greater Los Angeles area, you may qualify for state and federal energy tax credits for new HVAC units and other appliances. 

Home appliances are expensive, especially high-efficiency ones, but did you know about tax credits for new air conditioners, furnaces, or water heaters? Claiming them on your tax return can lower your tax bill, making your home upgrade more affordable. But first, you must know what you can deduct. It can help your purchasing decision go more smoothly. 

What Is a Residential Energy Credit?

Federal tax credits for energy efficiency became available with the Inflation Reduction Act of 2022. They’re intended to support the federal government’s goal of reducing energy costs and transitioning to cleaner energy sources. Various tax credits are now available to homeowners through 2032.

When you claim a tax credit, you can receive a deduction on taxes owed to the IRS for the year you purchased an eligible item. How much depends on the improvements you make. You may be able to claim up to 30% of a purchase, up to a certain amount. This means some homeowners can save thousands of dollars a year!

Home Appliances That Qualify for an Energy Tax Credit

To help you understand what qualifies for an energy tax credit, here’s a list of items that can help you save at the federal and state levels:

• Central Air Conditioners: You can claim up to 30% of the cost (up to $600) of installing a split AC system. To be eligible, the equipment must have a Seasonal Energy Efficiency Ratio (SEER2) rating of 16 or higher. Energy Star-certified packaged systems are also eligible. California residents can qualify for a $300 central AC unit tax credit. However, additional opportunities to save may be available locally. For example, the Los Angeles Department of Water and Power offers an incentive rebate program. You can receive a $100 to $120 per ton rebate for a high-efficiency air conditioner. Meanwhile, Burbank Water and Power offers residents up to $1,500 to replace an older, inefficient AC unit.
• Furnaces: If you purchase and install a furnace between January 1, 2023, and December 31, 3032, you can claim up to 30% of the project cost. The maximum tax credit for a new furnace is $600. Eligible equipment includes:
• Energy Star-Certified Gas Furnaces: Must have an Annual Fuel Utilization Efficiency (AFUE) of 97% or higher.
• Energy Star-Certified Oil Furnaces: Must have fuel blends of at least 20% renewable diesel, biodiesel, or second-generation biofuel.

Additionally, California homeowners can qualify for an up to $150 tax credit for gas furnaces.

• Boilers: Natural gas, propane, and oil water boilers are also eligible for a 30% tax credit up to $600. Units must be Energy Star-certified with an AFUE of 95% or above. Oil-powered boilers can also be eligible, depending on the type of fuel they use.
• Air Source Heat Pumps: Claiming up to 30% of the project cost can save you as much as $2,000 on a ducted or non-ducted heat pump. In Los Angeles and locations in the South, all ducted heat pumps with an Energy Star label are eligible for an HVAC federal tax credit. Ductless mini-splits must be rated 16+ SEER2. They must also have an Energy Efficiency Ratio (EER2) of at least 12 and a Heating Seasonal Performance Factor (HSPF2) of at least 9. Los Angeles residents can qualify for the same rebates as a qualifying AC unit. These include $100 to $120 per ton by the Department of Water and Power. Eligible heat pumps must have at least a 15.2 SEER2 rating.
• Geothermal Heat Pumps: Up to 30% of the cost of a geothermal heat pump can be covered under the Residential Clean Energy Tax Credit. This applies to equipment that uses ground or groundwater thermal energy for heating or cooling. Under this credit, principal residences and second homes qualify.

• The following tax credit amounts apply based on the installation date:
  • 30%: After December 31, 2016/Before January 1, 2020
  • 26%: After December 31, 2019/Before January 1, 2022
  • 30%: After December 31, 2021/Before January 1, 2033
  • 26%: After December 31, 2032/Before January 1, 2034
  • 22%: After December 31, 2033/Before January 1, 2035

• Water Heaters: You can also claim a tax credit on a water heater, up to 30% of its cost (to a maximum of $600, as with an AC unit tax credit). This applies to Energy Star-certified gas storage water heaters with a Uniform Energy Factor (UEF) of at least 0.81 (units with tanks less than 55 gallons) or at least 0.86 UEF ( units with 55-gallon or larger tanks). Tankless gas water heaters rated at least 0.95 UEF are also eligible.
• Heat Pump Water Heaters: Up to 30% of the project cost can be claimed, up to $2,000. Qualifying appliances must be Energy Star-certified. The unit must be installed in an existing home that’s your principal residence (not a new construction or rental).
• Smart Thermostats: Local rebates may be available, depending on your power company. Homeowners can receive a $75 rebate from Southern California Edison or a $50 to $120 rebate from Pacific Gas and Electric. 
• Solar Energy Systems: The same incentives are available to those who install solar energy systems as geothermal heat pumps. Installing a solar water heater can qualify you for an up to 30% tax credit (outdoor swimming pools or hot tubs are not eligible). At least half the energy it generates must come from the sun. You can also claim a credit on solar panels and photovoltaic systems that provide electricity for the home.

The Residential Clean Energy Tax Credit also includes upgrades such as small wind turbines, hydrogen fuel cells (at least 0.5 kW of electricity (electrochemical) and above 30% electricity-only generation efficiency), and battery storage technology with at least 3-kilowatt hours of capacity.

Other Upgrades

The Energy Efficient Home Improvement Credit not only applies to HVAC units. Other appliances that qualify for an energy tax credit include:

• Biomass stoves and boilers with at least a 75% thermal efficiency rating.
• Upgraded electrical panels with at least a 200 amp load capacity.
• New exterior windows or skylights that meet Energy Star Most Efficient criteria.
• Energy Star-certified exterior doors.
• Bulk insulation, including batts, rolls, rigid boards, blown-in fibers, pour-in-place, and expanding spray.
• Manufacturer-certified air sealing products, including weatherstripping, caulking, and house wrap.

Are There Limits to the New HVAC Tax Credit?

Limits apply to each type of equipment or home improvement. And, while you can qualify for multiple tax credits, there are aggregate limits. The overall total limit is $3,200, which includes $1,200 for HVAC federal tax credits and window, door, insulation, and other home envelope improvements. It also includes $2,000 for heat pumps (except geothermal systems that fall under a separate tax credit), heat pump water heaters, and biomass stoves/boilers.

How to Claim a Tax Credit

When you purchase appliances that qualify for an energy tax credit, use IRS Form 5695. Credits must be claimed with your federal income taxes for the year you made the upgrades. The eligibility criteria and requirements depend on which credit you apply for. 

• Energy Efficiency Home Improvement Credit: This can be claimed only for improvements to the home you live in most of the year. It must be an existing home located in the U.S. Other requirements for this program include:
• Does not apply to newly built homes.
• Landlords and off-site property owners cannot claim the credit.
• No lifetime dollar amount, so you can claim the maximum credit every year you make eligible improvements (through 2032).
• The tax credit is nonrefundable (you can’t get back money if it exceeds the taxes you owe).
• Excess credit cannot be claimed for future tax years.
• Residential Clean Energy Credit: It can be claimed for improvements to your primary residence (new or existing) located in the U.S. Except for fuel cell property, you can claim the credit for improvements made to a second home where you live part-time and don’t rent out to tenants. 

In addition:

• Excess credit can be carried forward to reduce taxes owed in the future.
• Interest paid, including loan origination fees, cannot be included in your claim.

Additional Ways to Save

An HVAC federal tax credit can save on your purchase. You can also save by scheduling a home energy audit. You can claim up to 30% of the cost of one, up to $150. The process can help identify efficiency improvements that can save you money in energy consumption and taxes. 

Nonetheless, a tax credit isn’t the only way to save on installing HVAC equipment or other appliances. Other ways to save on home upgrades include the following:

• Promotions: If the contractor offers coupons, discounts, and other specials, it can significantly reduce the price of your HVAC system.
• Manufacturer Rebates: Appliance manufacturers often issue rebates on a seasonal basis or to promote certain products.
• Local Incentives/Rebates: Cities, counties, and utility companies may offer locally available financial incentives for energy-efficient upgrades.

Service Genius Helps with Home HVAC and Water Heater Upgrades

We find solutions that meet your home’s and family’s individual needs. From system selection to precise installation to independent verification of the quality and performance of equipment, Service Genius is committed to delivering exceptional work and customer satisfaction. Our customers in the Greater Los Angeles area can trust our highly trained and experienced team for:

Air Conditioners

When you need AC installation or replacement, we find an affordable solution for your home. Our AC repair technicians quickly restore cooling performance, while our maintenance staff keeps your system in top shape to avoid costly repairs.

Heaters

Our HVAC professionals are skilled in heater installation and repair. They install and service high-efficiency furnaces and are familiar with the latest technologies, including heat pumps and variable-speed furnaces, to help reduce heating costs. 

Water Heaters

We ensure your home’s hot water demands are met, whether you prefer a traditional tank-based system, a tankless water heater, or a heat pump water heater. Our team follows the highest quality standards when installing, repairing, or maintaining equipment.

Indoor Air Quality Testing

The latest diagnostic tools help us accurately assess your home’s air quality. We can determine what filter to install, where air ducts may need cleaning or sealing, and if other sources of pollution must be addressed. Our team also checks how your HVAC system is functioning.

Contact Us Today

Are you looking for furnace or AC unit tax credits to help you save? Learn more about When to Repair or Replace an AC Unit.

At Service Genius, we can find the best heating and cooling system for your Los Angeles home and determine what appliances qualify for an energy tax credit. Financing options are available. Read our 5 Star Reviews. For expert service schedule a day or emergency same–day service, contact Service Genius!