How to Leverage the Residential Energy Credit for Central Air Conditioners [2024]

For today’s article, we’ll show you how to use tax breaks for improving central air conditioners.

In an era where energy efficiency is not just a choice but a responsibility, homeowners can reduce their carbon footprint while simultaneously cutting down on energy costs.

One effective method to achieve this is through the Residential Energy Credit, a financial incentive that encourages homeowners to make energy-efficient improvements to their homes.

Key Points

• The benefits of updating your central air conditioning system under this credit 💨
• Advantages of split and duct air conditioners 🤑
• The process of making your home more energy-efficient and comfortable  🏡

What is the Residential Energy Credit?

The Residential Energy Credit is a tax incentive designed to encourage homeowners to invest in energy-efficient home improvements, including heating, cooling, and ventilation systems. By installing qualified energy-efficient products, homeowners can receive a tax credit, reducing their overall tax liability. This incentive not only makes it more affordable to upgrade to energy-efficient appliances but also promotes a healthier environment by reducing energy consumption.

Why Update Central Air Conditioners?

Updating your central air conditioner to a more energy-efficient model is a decision that pays dividends in both comfort and cost. Here are a few reasons why:

1. Reduced Energy Bills: Energy-efficient models use less electricity to cool your home, leading to significant savings on your utility bills.
2. Increased Home Comfort: Newer models offer better airflow and cooling capabilities, ensuring your home remains comfortable even during the hottest days.
3. Environmental Impact: By consuming less power, you contribute to lower carbon emissions, helping in the fight against climate change.
4. Enhanced Property Value: Homes with energy-efficient systems are more attractive to buyers, potentially increasing your property value.

Mini Split vs. Duct Air Conditioners

When considering an upgrade to your central air conditioning system, it’s essential to understand the difference between split and duct air conditioners, as both have unique advantages and can affect your eligibility for the Residential Energy Credit.

Mini Split Air Conditioners

• Also known as ductless, mini-split, or multi-split systems, these air conditioners consist of an outdoor compressor unit and one or more indoor air handling units.
• They are connected by a conduit, which houses the power cable, refrigerant tubing, and a condensate drain. Split systems are ideal for homes without existing ductwork, offering a flexible, efficient, and quieter cooling solution.
• They allow for zoned cooling, meaning you can control the temperature in individual rooms, further enhancing energy savings.

Ducted Air Conditioners

These traditional systems use a network of ducts to distribute cooled air throughout the home. They are suitable for cooling multiple rooms at once and are often considered when a home already has existing ductwork.

While ducted systems can be less energy-efficient than split systems due to potential energy loss in the ductwork, choosing an energy-efficient model and ensuring proper insulation and sealing of ducts can mitigate these losses and qualify for the Residential Energy Credit.

How to Use the Residential Energy Credit to Save?

This tax credit is effective for products purchased and installed between January 1, 2023, and December 31, 2032. (EnergyStar)

How Much Can I Save? (with example)

30% of project cost (Up to $600 which is the maximum amount credited allowed)

Example: Let’s say Sara decides to have a new mini-split air conditioner installed for $1,800. When filing her taxes she would be able to apply $600 to reduce her tax liability.

Supported Manufacturers

Manufacturers that meet the required standards will be certified and listed on the ENERGY STAR website.

For split systems, ENERGY STAR-certified equipment with SEER2 > 16 is eligible for the residential energy credit. 

All ENERGY STAR-certified packaged systems are eligible.

Note: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”  The eligibility described above is consistent with this requirement.

The following manufacturers have air conditioners that are eligible for the tax credit:

• Airquest
• Arcoaire
• Bryant
• Carrier
• Comfortmaker
• Day & Night
• Heil
• Keeprite
• Kenmore
• LPS Legacy
• Midea
• Payne
• SMART COMFORT
• Tempstar
• WEATHERMAKER
• DIRECT AIR
• Arctic King
• MDV
• Hotpoint
• Daikin
• GREE
• Innovair
• KANIONco
• Lennox
• Mitsubishi Electric
• Trane / Mitsubishi Electric
• HAXXAIR

Key Considerations When Picking Central Air Conditioners

When selecting an HVAC system, especially from top brands like Carrier, Lennox, Daikin, Mitsubishi Electric, and Trane, consider the following factors:

1. Energy Efficiency: Look for systems with a high SEER (Seasonal Energy Efficiency Ratio) rating. Energy-efficient units may cost more upfront but can save significant money in energy bills over time.
2. Size and Capacity: Ensure the system is correctly sized for your home. A system that’s too large or too small will not run efficiently and can lead to increased energy costs and wear.
3. Reputation and Reliability: Choose brands known for their durability and reliability. Reading reviews and seeking recommendations can provide insights into the long-term performance of different brands.
4. Warranty and Support: Look for comprehensive warranties and responsive customer support. A good warranty can protect your investment, while reliable customer support can resolve any issues that arise quickly.
5. Cost: Compare the total cost, including installation and any necessary modifications to your home. Remember, the cheapest option may not always offer the best value over the system’s life.
6. Technological Features: Many modern systems offer advanced features such as smart thermostat compatibility, zoning capabilities, and variable speed motors for enhanced comfort and efficiency.
7. Environmental Impact: If sustainability is a priority, consider brands that use environmentally friendly refrigerants and have a lower carbon footprint.

Given the IRS’s identification of eligible producers for central air conditioners, it’s beneficial to research each brand’s offerings that qualify for the Residential Energy Credit.

Systems from these brands that meet specific energy efficiency criteria can not only provide immediate comfort and long-term savings but also contribute to reducing your tax liability, making them a smart investment for eco-conscious homeowners.