The HVAC industry got a Christmas gift from the federal government in late 2010, when those energy efficiency tax credits were approved for one more year - although at the lower level of $500. Contractors have been using the credits to help give replacements and upgrades a quicker payback.

“While we are happy to see the 25c tax credits extended for 2011, we were disappointed by the substantial reductions to their value and changes to the minimum standards for some of the qualifying equipment,” said Charles McCrudden, vice president of government relations for the Air Conditioning Contractors of America (ACCA).

The tax extender package was signed into law on Dec. 17, 2010, by President Obama, who had negotiated the deal with congressional leaders. McCrudden added that it was an “odd coalition to move a major piece of legislation,” since the president worked together with Republicans and conservative Democrats.

As expected, the new law includes a two-year extension of the Bush tax cuts for all income levels, a lower capital gains tax rate for investors, an increase of the exemption for the estate tax to $5 million per individual (and lowering of the tax rate to 35 percent), enactment of the Alternative Minimum Tax “patch” for 2010 and 2011, and other pro-small business provisions, McCrudden explained.

“Unfortunately, while the tax package does include an extension of the 25c nonbusiness energy tax credits (the official IRS name for the homeowner’s energy efficiency tax credit), last-minute modifications were made, resetting the credit value to pre-stimulus bill levels of 10 percent of the installed costs, with maximum credit for all qualified retrofits of $500,” he wrote. The stimulus bill, or American Recovery and Reinvestment Act (ARRA), had increased the 25c tax credit limit to $1,500 during 2009 and 2010.

Now the new tax law reinstates the caps on equipment that were in place in 2006 and 2007, McCrudden said. “That means the maximum tax credits available to an eligible taxpayer for installing a qualified central air conditioner or heat pump are $300, and the maximum tax credit available for a qualified furnace or boiler is $150.”

The tax extender package also reinstates the lifetime credit caps. These disqualify any homeowner who has claimed more than $500 in 25c tax credits since Jan. 1, 2006, from any further credits, McCrudden explained. And the qualifying guidelines for natural gas and propane hot water boilers, and oil furnaces and hot water boilers, have been increased to 95 percent AFUE.


It’s no secret that the higher rebate levels were helping many contractors make sales in an otherwise down market. What can they do to maintain consumer interest in high-efficiency products now?

The ability to purchase products eventually gives clients more money in their pocketbooks, while creating fewer greenhouse gases, McCrudden said. “If you take away the payback, you’ve still got the other benefits.” In fact, customers will still see a payback; it just won’t be as quickly.

Some contractors may turn increased attention to renewable systems if their customers are interested (like Brady Energy Services; see article on page 10). “There is no change pending to tax credit 25d,” he confirmed, which provides a higher tax incentive for geothermal, solar, wind, and fuel cell installations. He called consumer interest in 25d “substantial.” It’s good for 30 percent of these systems’ installed costs, with no limit, through 2016.

During the last quarter of 2010, a lot of contractors were proclaiming that tax credits were ending to drive year-end sales. This strategy may now backfire, especially if it adds to consumer confusion in 2011.

The higher tax credit levels “have been almost too successful,” McCrudden said. Nonetheless, “A lot of stuff in this bill is very good for the HVAC community.”

Kateri Callahan, president of the Alliance to Save Energy, said the tax incentives “are a welcome signal to U.S. consumers, who currently face rising energy costs in a still-uncertain economy, that Uncle Sam will help them pay for energy efficiency improvements to make their homes more comfortable and their energy bills more affordable for years to come. But we’re sorely disappointed that Congress did not see fit to make the incentives more generous. That would have increased their use by consumers, to the benefit of our economy, energy security, and environment.”

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Sidebar: 2011 Tax Credits

• Eligible taxpayers can claim up to $500 in 2011.

• All efficiency levels stay at the current levels - except for natural gas, propane, and oil furnaces and hot water boilers, which will move to 95 percent AFUE.

• A lifetime cap of $500, dating back to January 2006, is reinstated for individuals and households. For example, if an individual has claimed the 25c tax credit since 2006, he would be ineligible to claim the credit in 2011 for any qualifying upgrade up to or over $500.

As of Jan. 1, 2011, the new credit levels are:

• $50 for any advanced main air circulating fan.

• $150 for any qualified natural gas, propane, or oil furnace or hot water boiler.

• $300 for any item of energy-efficient building property (e.g., central air/heat pump).

Source: Heating, Airconditioning & Refrigeration Distributors International

Publication date:01/10/2011