In a nutshell, a tax credit is an incentive offered by a state or the federal government while a rebate is offered by a local energy company. Rebates can also be obtained by working through the HVAC manufacturer you choose such as Trane, Carrier or Goodman.
What is In this Guide
Federal Tax Credits – Then and Now
In 2009, homeowners were facing falling real estate values that put many “underwater” on their mortgage. Congress and the President passed the American Recovery and Reinvestment Act to offer some relief.
The Act included significant tax credits for the installation of energy efficient residential and commercial HVAC equipment, solar and wind energy equipment and even some building materials that improved a home’s energy efficiency. You could get the equipment at a discount, and then enjoy lower energy bills too. It made sense.
Are federal HVAC tax credits still in effect?
No: Federal tax credits for standard heat pumps, air conditioners, furnaces and boilers have ended.
State & Local Programs – How to Find Them
Many states and local municipalities offer some kind of incentive for efficiency.
The federal government helps in one regard – If you get an energy conservation subsidy for energy-efficient equipment or building materials such as Energy Star windows or insulation, the subsidy is considered non-taxable income.
DsireUSA.org is the website of the Database for State Incentives for Renewables and Efficiency. It is part of the US Department of Energy and is, “The most comprehensive source of information on incentives and policies that support renewables and energy efficiency in the United States.”
Types of Programs at DsireUSA.org
Some of the most common programs you’ll find when searching the site include:
· Credits and rebates for efficient HVAC equipment from local energy companies. The programs apply to heating and air conditioning equipment, thermostats, Energy Star appliances and LED lighting. Here’s an example from Commonwealth Edison of Illinois that offers credits up to $600 for an 18 SEER heat pump or AC, for example, and $400 for a 16 SEER unit.
· Net metering, or net energy metering (NEM) for solar. According to EnergySage, NEM is, “A solar incentive that allows you to store energy in the electric grid. When your solar panels produce more electricity than you need, that energy is sent to the grid in exchange for credits.”
· Weatherization of your home or business to improve insulation and heat loss or gain. Some cover energy-efficient heat pumps and furnaces too. This one applies to low-income residential and tribal governments.
· Solar photovoltaics
· Low-rate loans for purchasing energy-efficient equipment (more below)
How to Use DsireUSA.org
You can imagine that a national database would be quite large. This one is, and the site is a bit cumbersome to navigate.
These steps will help once you go to the site:
1. Enter your Zip Code in the Zip Code search box.
2. Use the Filters to refine your search.
For example, to review all residential programs:
For HVAC equipment specifically:
3. Browse the Programs and select one you’re interested in to learn more. Most often, the page that loads will have a general overview with a link to a page with the specific details.
Credits from Energy Providers
These were discussed in the section above on the Database of State Incentives.
We mention it again because you can also go directly to your local energy provider to find rebates. We recommend searching for them on the company’s website. That’s likely a faster way to learn about them than calling.
We’ll use Consumers Energy of Michigan as our example. To find rebates, we typed into a search engine “hvac rebates consumers energy.”
The first four search results were about the various programs. Selecting two of them, we found:
- A general Overview page with a link called Get Started, which led to a link called Find a Contractor. This route would take us to local contractors that are knowledgeable about and experienced in the installation of equipment qualifying for a rebate.
- A page called Energy Efficiency Rebates and Solutions where you can select options for HVAC Equipment, Insulation & Windows, Lighting, New Home Construction and more. The links take you to program specifics.
The point in sharing that process is to show that you might have to try several pages and a few links before you find the details you want.
Most energy providers are like Consumers. You have to:
1. Find an installer. We've written a very popular article on how to find an hvac installer, or you can get a quick answer by using our free quote tool to receive free estimates from up to 4 different local contractors.
2. Fill out an application for the rebate
3. Provide verification of the installation
4. Submit the application/verification and wait.
Most installers will do the paperwork for you.
A rebate will be sent to you in the form of a check or your account will be credited.
How large are the energy credits? It depends on the efficiency of the unit. The more efficient, the higher the rebate (and the lower your future energy costs will be).
Here are highlights from the Consumers Energy Rebate program to serve as an example:
Central AC or Heat Pump
14.5 to 21+ SEER
$50 to $500 based on SEER
Ductless Heat Pump
18 to 21+ SEER
$250 oro $350 based on SEER
95 to 97+ AFUE
$200 to $400 based on AFUE
$750 to $900 based on AFUE
Tankless Water Heater
$10 for non-WiFi / $50 for WiFi
Cheap Financing for Efficient Equipment aka Green Loans
These are not credit or rebate programs.
They are low-interest loans to help you pay for efficient equipment, usually solar, wind and/or geothermal.
Beware: There are payday loan companies using names like Plain Green loans or similar. Avoid them. They have nothing to do with energy and charge rates up to 300%. We mention this because if you search “green loans” or similar, these predatory lenders will populate the search results.
OK. Here are the best options for a green loan.
1). Your bank. Large, national lenders like Wells Fargo and many others have loan programs for the installation highly efficient or renewable energy equipment. If you like your bank, that might be the best institution to work with.
2). Green lending specialists. We have no relationship to any lender, and we are not recommending any lender. Search “loans for solar panels” or similar, and you’ll find options in the results.
3). The federal Fannie Mae HomeStyle Energy program for upgrades to an existing home.
Rebates through the HVAC Manufacturer
While typically called manufacturer rebates, these are rebates from your energy provider, as discussed above.
We’re not connected with any manufacturers. For example only, here are a few current rebates.
Rebates apply to Energy Star equipment. The amount of the rebate goes up as efficiency rises.
The amount also varies from one energy provider to another.
- $150 to $300 on packaged systems
- $250 to $400 on central air conditioners and heat pumps
- $200 to $400 on gas furnaces
- Up to $450 on gas furnaces
- Up to $450 on heat pumps and air conditioners
- Up to $350 on ductless mini split heat pumps
- Up to $150 on a packaged unit
- Up to $900 on a boiler
It is much the same with Goodman and many others. The Lennox, Heil and other rebates pages simply redirect you to the DsireUSA site explained above.
The process is the same as if you work through your energy company:
- Find an installer. We've written a very popular article on how to find an hvac installer, or you can get a quick answer by using our free quote tool to receive free estimates from up to 4 different local contractors.
- Fill out an application for the rebate
- Provide verification of the installation
- Submit the application/verification and wait.
Is High-efficiency HVAC Equipment Worth it?
From a financial standpoint, it depends on your climate and what equipment you’re considering.
In a cold climate, you’ll soon recoup the extra cost of a 97% efficient furnace compared with a 90%, especially if there is an energy rebate. However, you wouldn’t make back the higher cost of a 20 SEER AC vs. a 14 SEER model, even with the rebate.
In a hot climate, the opposite would be true.
It might take doing some math. Multiply energy cost by the efficiency upgrade percentage. Factor in the rebate, and compare that with the extra cost of the furnace, heat pump or air conditioner.
For example, if you spent $1,500 on cooling using a 15 SEER AC, you’ll save a third, or $500, with a 20 SEER AC. The 20 SEER model might cost $1,000 more than the 15 SEER model.
The rebate on a 20 SEER AC would be about $350, so the higher cost is really only $650 ($1,000 - $350). If you save $500 in energy costs the first year, now the balance is $150. The second year, you’ll make up the balance and keep $350 in your pocket. The third year and for the life of the AC, you’ll save $500 on energy use.
So yes, upgrading and enjoying a rebate can definitely be a cost-effective move – that is good for the planet too.