Credit Available 30% of total cost (materials & labor)
$1,500 maximum for all improvements combined
Timeline Must be "placed in service" (ready and available for use)
Jan. 1, 2009 – Dec. 31, 2010
Central A/C Split Systems: EER >= 13 º SEER >= 16 
Package Systems: EER >= 12 º SEER >= 14
Air Source Heat Pumps Split Systems: HSPF >= 8.5 º EER >= 12.5 º SEER >= 15
Package Systems: HSPF >= 8 º EER >= 12 º SEER >= 14
Furnaces Natural Gas or Propane: AFUE >= 95
Oil: AFUE >= 90
Hot Water Boilers Gas, Propane, or Oil: AFUE >= 90
Advanced Main Air Circulating Fans <=2% of furnace total energy use
If furnace or fan complies but not both, it is likely that the credit will be allowed only on the component that complies. As of May 31, 2009, the IRS had not yet ruled on this
To find qualified residential HVAC products, go to www.cee1.org
See summary chart: Stimulus at a Glance

The American Recovery and Reinvestment Act’s energy-efficiency tax credits include HVAC systems. Installers should recommend a system based on several factors, including the orientation and shading of the house, the window coverings, and the homeowner’s lifestyle.

Remodelers and homeowners should also consider the effect of the HVAC installation on the home’s air quality and comfort, especially when planning an addition or a major remodel.

Efficiency Levels

The efficiency level for qualifying HVAC equipment is high — in most cases higher than current Energy Star standards — and comes with a premium price tag. HVAC contractor Jim Firszt, HVAC consultant with Mid-American Heating & Air Conditioning, in Spring Grove, Ill., says that customers who have just begun to understand Energy Star ratings may be confused about the tax credit standards.

However, manufacturers, contractors, and homeowners are encouraged by the higher $1,500 cap. “Back in 2005, that tax credit was small and not enough to drive most people to upgrade. Now it’s so much larger that it is creating buzz,” says Michael Tucker, owner of Tuckers Air Conditioning & Heating, in Gaithersburg, Md.

But those same credits also include other home improvements, so HVAC contractors will have to compete for this business.

Some experts say that the higher cost of stricter-than-Energy-Star equipment is limiting. “A fair number of consumers who could have participated in an upgrade simply won’t,” says Gordon Wuthrich, vice president of marketing for Trane Residential Systems, in Tyler, Texas. “Do you want 10% of homeowners to upgrade from 13 SEER to 16 SEER or 30% of homeowners to upgrade from 8 SEER to 13 SEER?” he asks.

Market Reach

Manufacturers and contractors say that due to the coverage and promotion of the larger stimulus package, homeowners are generally aware of tax incentives for energy-related improvements.

“It’s not a frenzy in our trade,” says John Poyle, a sales manager with Frederick Air, in Frederick, Md., whose clients tend to choose elite systems. “If they are not going to replace, it’s not prompting them to replace. They might be spending more than they normally would because of the credits.”

Before the tax credits, Firszt says, the clients who chose high-efficiency equipment were owners of large custom houses. “Now, for people who would already do projects, it’s getting them to make the jump to the next level,” he says.

Kathe Stewart, COO of Precision Air Conditioning & Heating, in Memphis, Tenn., says that green-oriented clients also tend to purchase equipment with higher efficiency levels, but now that many clients are likely to stay longer in their homes, they’re likely to spend more on the upgrades. “I’m surprised at the number of owners of rental properties who are installing high-efficiency products,” she says.

Priced at a Premium

Trane’s Wuthrich points out that the $1,500 credit takes a big bite out of the $6,000 to $7,000 cost of an average system.

Bob Swilik, senior manager of residential and light commercial systems product strategy for Carrier Corp., in Farmington, Conn., says that, on average, the high-efficiency equipment might cost 30% to 40% more than less-efficient equipment but the efficiency trade-off is worth the premium. He says that upgrading from a 13 SEER to a 16 SEER air conditioner provides about 25% better efficiency. “But, when you’re replacing a system, you are typically replacing an existing 8 SEER or 10 SEER. Then you’re looking at a 40% to 50% saving on utility bills,” Swilik says.

Firszt helps homeowners figure out their return on investment with these units, factoring in how long they plan to stay in their homes. An average house might need a 70,000 BTU furnace and a 2.5 ton air conditioner that costs $5,000. A qualifying air conditioner or furnace might cost an additional $2,600. “If they spent $7,600, minus $1,500, minus any manufacturer rebate, plus the energy savings per month, they would come out ahead,” Firszt says.