In an attempt to spur higher energy efficiency, the Energy Policy Act of 2005 first established tax credits for installing energy-efficient home equipment like furnaces. The credits subsequently were renewed as a part of the post-Great Recession stimulus bills. As of 20013, the government still will help you defray the cost of choosing a higher-efficiency furnace for your home.
As of the time of publication, the energy-efficiency credit for a new furnace was set to expire at the end of 2013. To qualify for the credit, you must have installed the furnace before the end of the year -- simply ordering it is not enough.
Choosing a Furnace
Not every furnace qualifies for a credit -- even an Energy Star certification isn't good enough by itself. To get the $150 credit, you need to choose a highly efficient system with an annual fuel efficiency rating of 95 or greater. A 95 AFUE rating means that only 5 percent of the heat generated by the furnace goes up its chimney -- the rest of it goes into your house's duct system. You can also use the credit for a boiler, if your house uses a hot water heat system.
Unfortunately, the $150 credit is limited in where you can use it. The Internal Revenue Service only lets you claim it on a furnace that you install in your existing primary residence. Units installed in rentals, second homes or vacation homes don't count. If you're building a new house and choose to get a high-efficiency unit, you also won't be able to claim the credit.
Filing the Form
To actually claim the credit, you need to complete IRS form 5695 and attach it to your tax return. The new furnace gets reported in Part Two of the form, near the bottom on line 24. Although you can combine the credit with credits for other energy-efficient home equipment, you can't claim more than a total of $500 of credits for energy-efficiency improvements.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.