HVAC systems that meet Department of Energy efficiency standards may have access to for the 2023 energy tax credit, which covers heat pumps, furnaces, and air conditioners installed in your primary home

The Inflation Reduction Act expanded the energy tax credit starting in 2023, and HVAC equipment is one of the largest categories covered. The credit applies to the equipment itself — not installation labor — and the amount depends on what type of system you install and your household income. You claim it on your 2023 tax return using Form 5695, and the credit reduces your federal income tax dollar-for-dollar.

Not every HVAC system qualifies. The equipment must meet specific efficiency ratings set by the Department of Energy, and it must be installed in a home you own and live in. If you rent, or if the system is for a vacation home or investment property, you cannot claim the credit. The system also must be new — replacing an existing unit counts, but used equipment does not.

Key Takeaways

  • Heat pumps, furnaces, and air conditioners all may have access to if they meet Department of Energy efficiency standards, but the specific rating required varies by equipment type and your climate zone.
  • The credit is capped at $3,200 for a heat pump, $2,000 for a furnace, and $2,000 for an air conditioner, and you can claim only one credit per type of equipment per year.
  • Your household income determines whether you receive the full credit or a reduced amount — the phase-out begins at $150,000 for single filers and $300,000 for married couples filing jointly.
  • You must have the manufacturer's certification statement showing the equipment meets the required efficiency standard, and your contractor should provide this document at the time of installation.
  • The credit is claimed on Form 5695 when you file your 2023 tax return, and you cannot claim it for equipment installed before January 1, 2023, or after December 31, 2032.

Heat Pumps and the Highest Credit Amount

Air-source heat pumps carry the largest credit: up to $3,200. These systems heat and cool by moving air between indoors and outdoors, and they work in most climates. The equipment must have a Heating Seasonal Performance Factor (HSPF2) rating of at least 8.5 and a Seasonal Energy Efficiency Ratio (SEER2) rating of at least 16. Ground-source (geothermal) heat pumps also may have access to and use the same $3,200 credit, but they require a different efficiency standard: a Coefficient of Performance (COP) of at least 3.3.

If your household income is at or below the phase-out threshold, you receive the full $3,200. If your income exceeds the threshold, the credit reduces by 2 percent for each $1,000 over the limit. For a single filer, the threshold is $150,000; for married couples filing jointly, it is $300,000. At twice the threshold income, the credit reaches zero.

Heat pumps installed as a replacement for an existing furnace or air conditioner are the most common route to this credit. Your contractor should provide the manufacturer's certification at the time of installation, showing the HSPF2 and SEER2 ratings. Keep this document with your tax records.

Furnaces and Air Conditioners: Lower Credits, Stricter Standards

A new furnace or air conditioner alone — without a heat pump — qualifies for a $2,000 credit each. A furnace must have an Annual Fuel Utilization Efficiency (AFUE) rating of at least 95 percent. An air conditioner must have a SEER2 rating of at least 16, the same as a heat pump's cooling standard.

These credits are subject to the same income phase-out as heat pumps. You can claim both a furnace credit and an air conditioner credit in the same year if you install both, but you cannot claim two furnace credits or two air conditioner credits in one year. If you replace a furnace with a furnace in 2023 and then replace an air conditioner with an air conditioner in 2024, you can claim both credits — one on each year's return.

The efficiency standards for furnaces and air conditioners have tightened in recent years. If you are replacing an older system, most new equipment will meet the 2023 standard. Your contractor's quote should state the AFUE or SEER2 rating; if it does not, ask for it before signing the contract.

Income Phase-Out and How It Reduces Your Credit

The credit begins to phase out when your modified adjusted gross income (MAGI) exceeds the threshold for your filing status. For 2023, the thresholds are $150,000 for single filers, $300,000 for married couples filing jointly, and $200,000 for heads of household. Your MAGI is usually your adjusted gross income from your tax return, but some income items are added back — your tax preparer or tax software will calculate this.

The reduction is 2 percent per $1,000 of income over the threshold, rounded up to the nearest $1,000. If you are a single filer with MAGI of $160,000, you are $10,000 over the threshold. The credit reduces by 20 percent (2 percent × 10), so a $3,200 heat pump credit becomes $2,560. At $250,000 MAGI, you are $100,000 over the threshold, the credit reduces by 100 percent, and you receive nothing.

If you are married filing jointly with MAGI of $310,000, you are $10,000 over the $300,000 threshold. The same 20 percent reduction applies, so a $3,200 credit becomes $2,560. The phase-out is the same percentage for all three equipment types, but it starts from the full credit amount for each.

What Documentation You Need for Your Tax Return

To claim the credit on Form 5695, you need the manufacturer's certification statement for the equipment you installed. This document shows the model number, the efficiency rating (HSPF2, SEER2, AFUE, or COP), and confirmation that it meets the Department of Energy standard. Your contractor should provide this at the time of installation or shortly after. If you do not have it, contact the contractor or the equipment manufacturer with your invoice and installation date.

You also need your home address and the date the equipment was placed in service (the installation completion date, not the purchase date). Keep your invoice and any warranties with your tax records. The IRS does not require you to attach the certification to your return, but you must have it available if the IRS asks questions later.

Form 5695 asks for the type of equipment, the year it was installed, and the credit amount. If you installed multiple types of equipment in 2023 — for example, a heat pump and a furnace — you list each on a separate line. The form calculates the total credit and shows how much reduces your tax liability.

Equipment Installed Before 2023 or After 2032 Does Not may have access to

The expanded energy tax credit under the Inflation Reduction Act applies only to equipment installed between January 1, 2023, and December 31, 2032. If you replaced your HVAC system in 2022, you cannot claim the 2023 credit, though you may have been able to claim a smaller credit under the previous rules (check your 2022 return or ask your tax preparer). If you plan to install equipment in 2024 or later, the credit will still be available through 2032.

The installation date is what matters, not the purchase date. If you bought a furnace in December 2022 but did not have it installed until January 2023, you can claim the 2023 credit. Your contractor's invoice should show the completion date. If the invoice shows only a purchase date, ask for a separate completion or "placed in service" date.

Income Limits and Rental Properties: Who Cannot Claim the Credit

The credit is limited to your primary residence — the home where you live most of the year. If you own a rental property, a vacation home, or a second residence, HVAC equipment installed there does not may have access to. The IRS defines primary residence as the place where you spend the majority of your time, and you must own the home (not rent it).

If you are a landlord and you install a new HVAC system in a rental unit, you cannot claim this personal tax credit. You may be able to deduct the cost as a business expense on your Schedule C or Schedule E, but that is a different calculation and is not the energy tax credit.

Tenants cannot claim the credit either, even if they pay for the equipment themselves. The credit requires ownership of the home and the equipment. If you rent and your landlord installs new HVAC equipment, only the landlord can claim the credit.

Frequently Asked Questions

Can I claim the credit if I had a contractor install the system, or do I have to install it myself?

You can claim the credit regardless of who installs the equipment. The credit covers the cost of the equipment itself, not the labor. The contractor must provide the manufacturer's certification showing the efficiency rating, but you do not have to do the installation work yourself.

What if my household income is above the phase-out limit — do I get nothing?

At twice the threshold income, the credit reaches zero. For a single filer, that is $300,000 MAGI; for married filing jointly, it is $600,000. If your income is above that level, you cannot claim the credit. If your income is between the threshold and twice the threshold, the credit reduces gradually.

Can I claim a credit for replacing a furnace with a heat pump?

Yes. A heat pump replaces both heating and cooling functions, so you claim the $3,200 heat pump credit. You cannot also claim a furnace credit or air conditioner credit for the same installation. If you had a separate air conditioner and you replace only the furnace with a heat pump, you claim the heat pump credit for that year and can claim an air conditioner credit in a future year if you replace the air conditioner later.

Do I need to file Form 5695 even if the credit is reduced to zero by the income phase-out?

No. If your income is high enough that the credit phases out completely, you do not need to file Form 5695. Your tax software or preparer will calculate the phase-out and tell you whether you have a credit to claim. If the credit is zero, there is nothing to report.

What if I installed the equipment in late December 2023 but did not receive the manufacturer's certification until 2024?

You can still claim the credit on your 2023 return. The installation date is what matters, not when you receive the paperwork. If you file your 2023 return before you have the certification, you can file an amended return (Form 1040-X) once you have the document, or you can keep the certification with your records in case the IRS asks for it later.