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Tax Incentives Reduce Cost of Replacing Heating and Cooling Systems

Tax credits are available to help homeowners replace heating, ventilating and air conditioning systems.

Homeowners who are replacing flood-damaged heating, ventilating and air conditioning (HVAC) systems may be able to take advantage of tax incentives in the American Reinvestment and Recovery Act of 2009.

This legislation provides tax incentives that you can claim on your 2009 or 2010 tax returns for 30 percent of the cost of qualified energy-efficient heating systems up to a maximum of $1,500. You also can claim 30 percent of the cost for qualifying geothermal heat pumps, biomass stoves and wind energy systems, but they are not subject to the $1,500 cap. The tax credits cover both installation and qualifying equipment.

The improvements must be done on your principal residence. Improvements done on second homes or rental units will qualify for the tax credits for installation of qualifying geothermal heat pumps, biomass stoves and small wind energy systems.

Whether you are replacing flood-damaged systems or upgrading them for other reasons, you need to look not only at the cost of a system but also compare how much an HVAC system will cost to heat or cool your home through time, according to Carl Pedersen, North Dakota State University Extension Service energy educator.

“Just like looking at the miles per gallon when purchasing a new car, it is important to know how much a heating or cooling system will cost to operate before purchasing one,” he says.

He recommends homeowners become familiar with a few terms and abbreviations concerning the energy efficiency capability of an HVAC system. For example, the efficiency of central air conditioning (CAC) systems is measured by a seasonal energy efficiency ratio (SEER) and an energy efficiency ratio (EER); the higher the SEER or EER rating, the more efficient the system. A SEER rating relates to the efficiency of the air conditioner during a complete cooling season, while the EER refers to how efficient a unit is at a specific outdoor temperature.

Air source heat pumps also include a measure of the heating seasonal performance factor (HSPF), which is similar to the SEER rating, but instead of measuring the efficiency of the cooling, it measures a heat pump’s efficiency at providing heat during the heating season.

The efficiency of natural gas, propane or fuel oil furnaces is expressed with an annual fuel utilization efficiency (AFUE) rating. This rating shows how much heat from a fuel source is converted to heat for the home and how much is lost out the chimney. A furnace with a 90 percent AFUE rating delivers 90 percent of the available heat to the home and 10 percent is lost to the outside air.

The requirements for each type of HVAC system to qualify for the tax incentives depend on the ratings of the heating or cooling system.

“Determining what qualifies is not always easy,” Pedersen says. “It is not as simple as looking for an ENERGY STAR label.”

Air conditioners, for instance, have different ratings for packaged and split systems. Air conditioners generally have three main components: an evaporator coil, a compressor and a condenser. A packaged air conditioning (AC) system includes all the components in the same package, while a split system generally will have the compressor and condenser outside the home and the evaporator coil inside connected to a furnace or blower.

Packaged AC systems must have an EER rating of at least 12 and a SEER rating of 14; split systems must have an EER rating of at least 13 and a SEER rating of 16 for the entire system. Air source heat pumps must have a minimum HSPF of 8.5, an EER of 12.5 and a SEER of 15 for split systems and a minimum HSPF of 8, EER of 12 and SEER of 14 for packaged systems to qualify for the tax incentives. Manufacturers will provide a manufacturer certification statement that certifies the system meets the SEER, EER and/or HSPF requirements.

Natural gas or propane furnaces must have an AFUE rating of equal to or greater than 95 to qualify and an oil furnace must have an AFUE of at least 90.

“Generally, the greater the energy efficiency rating an appliance has, the greater the initial cost,” Pedersen says. “These tax incentives are meant to help homeowners reduce that initial cost, and the fuel savings in the future will help the homeowners for years to come.”

For more information on the tax incentives for HVAC systems, consult the Environmental Protection Agency Web site http://www.energystar.gov and click on the Tax Credits for Energy Efficiency tab. The ENERGY STAR Web site also has a FAQs (frequently asked questions) section that is updated constantly.

For more information on this or any other energy-related topic, contact Pedersen at (701) 231-5833 or carl.pedersen@ndsu.edu or visit the NDSU energy Web site at http://www.ndsu.edu/energy.

NDSU Agriculture Communication

Source:Carl Pedersen, (701) 231-5833, carl.pedersen@ndsu.edu
Editor:Ellen Crawford, (701) 231-5391, ellen.crawford@ndsu.edu
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