Heat Pump Highlights

Happy Independence Day!

We’re going to have a neighborhood burgers-n-dogs cookout this afternoon- what’chu up to today?

At this half-way point of the year, I usually attempt some sort of review and consolidation of my to-do list. It helps me keep focused at least a bit more on progressing the things that (at one point) were important enough to write down.

I did that yesterday and found my list is more than three times longer then when we started the year, and it almost all boils down to projects around the house.

We bought/closed in early January 2023 so in a few days we will have lived here in 6 months. That’s given me enough time to see the place ‘at ground level’ and find items that need my attention.

More- the Admiral’s had 6 months as well…
And anyone with an Admiral in the house probably knows that’s a to-do list amplifier of epic proportions.

Anyways, the summer heat has pushed the heat-pump project up to the top of the list. When we bought, the central air was (still is) working well but is an older model that has issues. Our intention was to add split ac units in various rooms to replace the central air.

This would allow more efficient heating/cooling because there’s rooms we don’t normally occupy- so no need to keep them ‘at temperature’ unless they would be occupied (like the spare bedroom when relatives visit).

All that to say this- the Inflation Reduction Act applies to this little project and I wanted to share a bit of what I’ve found…

First up, let’s have a look at the IRS website to see if this project is within the scope of the IRA:

Energy Efficient Home Improvement Credit
https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit

Some highlights applicable to my heat pump project-

-Starting in Jan 2023 the credit equals 30% of “certain qualified expenses”
-There are limits on the annual credit, “$2,000 per year for qualified heat pumps”
-Must be existing home that you are improving (not a new home)
-Must be primary residence (there are exceptions, but this is our primary)
-Improvements must meet energy efficiency standards and must be new (not used) gear
-Heat pumps must have a thermal efficiency orating of at least 75%
-Costs may include labor for installation

In true government fashion, there is a confusing piece to this- Is the split ac/heat pump considered under the ‘Residential Energy Property’ section and therefore limited to $600 credit and subject to the Consortium for Energy Efficiency (CEE) highest efficiency tier?

Or

Does it fall in the ‘Heat Pumps and Biomass Stoves and Boilers’ section and therefore has a $2,000 credit and subject to the 75% thermal energy rating.

Seems like, from this page, it is straight forward- a heat pump must fall into the heat pump section…

But when I go to the page that has instructions for filling out the form to claim these credits on our taxes, there’s a bit of a conflict…

Instructions for Form 5695 (2022) (I am assuming it will be similar for 2023)
https://www.irs.gov/instructions/i5695#en_US_2022_publink1000104013

In the section for ‘Residential Clean Energy Credit (Part 1)’ it seems that geothermal heat pumps are what is intended in this section. The heat pump I wish to use is a ‘air heat pump’, not a geothermal one.

Scrolling down, there is a section titled ‘Residential energy property costs’ that says (emphasis mine):

Residential energy property costs are costs of new qualified energy property that is installed on or in connection with your main home that you owned during 2022 located in the United States. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the energy property. Qualified energy property is any of the following.

• Certain electric heat pump water heaters; electric heat pumps; central air conditioners; and natural gas, propane, or oil water heaters.
• Qualified natural gas, propane, or oil furnaces and qualified natural gas, propane, or oil hot water boilers.
• Certain advanced main air circulating fans used in natural gas, propane, or oil furnaces.

So, this is the section where my heat pump belongs. To qualify, the form says, see lines 22a Through 22c for details (with a link that scrolls you down the page).

The ‘Lines 22a Through 22c’ section confirms that we include the cost of the heat pump and cost of labor for onsite assembly and installation and states the following regarding the efficiency of the unit:

• An electric heat pump that achieves the highest efficiency tier established by the Consortium for Energy Efficiency (CEE) as in effect on January 1, 2009.

It also says don’t enter any more than $300 for line 22a which, I think, means that was the max credit for an electric heat pump in 2022 and the IRA being approved in late 2022 for 2023 up to around 2033 will up that limit.

Also, the form instructions repeats several times that for purposes of taking the credit, you can rely on a manufacturer’s certification in writing that the product is a qualified energy property and to keep that certification in your records.

One more thing. That CEE top tier thing-
Bottom line- for Air Source Split Heat pumps, I need a SEER rating of 15 or higher to qualify.

Here’s the pdf directly from them that lists what that rating means.

https://library.cee1.org/system/files/library/12087/CEE_ResHVAC_specification2009.pdf

About as clear as mud, eh?

Here’s my take-aways:

-It appears that air source heat pumps with a SEER rating of 15 or higher will qualify for a tax credit
-I might need to find one that comes with that manufacturers certification the unit is qualified
-the tax credit is unclear to me if it is capped at $2,000 or something lower (like $300)
-I need to keep all the documents and let my tax preparer review it all at the end of the year

We bought a plug in hybrid late last year and were able to take advantage of tax credits on it. For that one, it was complicated to navigate all of the different lists and instructions- but at the end of the day, our tax preparer insisted on us submitting all of the documents so they could include them in the file in the event any audits crept up on us.

I’m all for staying ‘above board’ on taxes- I’m not a fan of taking risks in that category…

Anyways, thanks for sticking to the end here, I appreciate it.
Have you done any energy efficiency improvements to your home and have a story you like to tell me?
I’d love to hear it! (Especially the parts about the tax credits).

Oh, yeah- if you are looking into rooftop solar for your home, click here to get notified when Tucson Solar Insider Desk Guide for Buying Solar is released.

Happy Independence Day!

Be Good!
Curtis