Can I claim both HVAC system credit and utility rebates?

Yes, you can claim both the HVAC system tax credit and utility rebates. However, the federal tax credit—known as the Energy Efficient Home Improvement Credit under Section 25C of the Internal Revenue Code—is calculated based on the net cost of the HVAC system after subtracting any utility rebates you receive. This means the rebate reduces the amount eligible for the tax credit, but it doesn’t prevent you from benefiting from both.

How It Works

• Tax Credit Basics: The credit allows you to claim 30% of the cost of a qualifying HVAC system (including installation), but this is subject to specific caps depending on the equipment type (e.g., $2,000 for heat pumps, $600 for certain furnaces).
• Utility Rebates: These are incentives from utility companies to encourage energy-efficient upgrades. When you receive a rebate, you must subtract it from the total cost before calculating the tax credit.
• Impact of Rebates: The effect of the rebate on your tax credit depends on whether 30% of the net cost exceeds the credit’s cap:
  • If 30% of the net cost is above the cap, the rebate doesn’t reduce your final credit amount because you’re already limited by the cap.
  • If 30% of the net cost is below the cap, the rebate lowers your credit amount.

Examples

1. Scenario with a Cap Limit (Heat Pump)
   • Cost: $10,000
   • Rebate: $1,000
   • Net Cost: $9,000
   • Credit Calculation: 30% of $9,000 = $2,700, but capped at $2,000
   • Without Rebate: 30% of $10,000 = $3,000, still capped at $2,000
   • Result: You receive $2,000 (the cap) either way, plus the $1,000 rebate, for a total benefit of $3,000.
2. Scenario Below the Cap (Furnace)
   • Cost: $2,000
   • Rebate: $500
   • Net Cost: $1,500
   • Credit Calculation: 30% of $1,500 = $450 (below the $600 cap for furnaces)
   • Without Rebate: 30% of $2,000 = $600 (equals the cap)
   • Result: With the rebate, you get $450 credit + $500 rebate = $950 total benefit. Without the rebate, you get $600 credit. Here, the rebate reduces the credit but increases your overall savings.

Key Points

• Eligibility: You can receive both the rebate and the tax credit—no rules prohibit combining them.
• Calculation: Always subtract the rebate from the total cost before applying the 30% credit rate.
• Caps Matter: Check the specific cap for your HVAC system (e.g., $2,000 for heat pumps, $600 for furnaces) to see how the rebate affects your credit.
• Documentation: Keep records of the system’s cost, the rebate amount, and installation expenses for tax filing.

Additional Notes

• The rules above apply to the federal tax credit. State or local incentives might have different requirements, so check those separately if applicable.
• Use IRS Form 5695 to claim the credit, and refer to its instructions for details on subtracting rebates.

In summary, you can claim both the HVAC system tax credit and utility rebates, but the credit is based on the cost after the rebate is applied. Depending on the cost and the credit cap, the rebate may or may not reduce your final credit amount. For more details, see the IRS Form 5695 Instructions or Section 25C.

For the most accurate information about combining incentives in your specific situation, consulting with a tax professional is recommended.