How to Qualify a Furnace for Residential Energy Credits

Efficient furnaces reduce your energy and tax bills.
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If you're looking to install a new furnace in your home, you may be eligible to get a bit of what you spend on it back from Uncle Sam. As of July 2013, the Internal Revenue Service offers a $150 tax credit when you install an energy efficient furnace, although the credit is slated to expire at the end of 2013. If you choose a different heating technology or install an advanced main air circulating fan you can claim additional credits.

Furnace Requirements

For your furnace to qualify for a credit, it must be a high efficiency model. In addition to having Energy Star certification, it also needs to have an annual fuel utilization efficiency rating of 95 percent or higher. A 95 AFUE rating means that 95 percent of the heat that the furnace generates goes into your home's heating system with only 5 percent going up the furnace's chimney.

Primary Homes Only

To claim the credit, your new furnace must be installed in your primary home. Furthermore, you can only use it if you're installing a furnace in an existing home -- if you're building a new house for yourself, the credit isn't available. It also won't work with a second home or vacation home.

Other Credit Options

One way to save more energy and gain an additional credit is to install an advanced main air circulating fan along with your furnace. As long as the fan consumes 2 percent or less of the total energy consumed by the furnace, you can claim an additional $50 credit. Instead of a furnace, if you choose a heat pump unit, you can save even more energy and get a $300 credit. Geothermal heat pumps, which use the stable temperatures underground to absorb or generate heat instead of temperature differences between the outside air and your house, carry an uncapped 30 percent credit that doesn't, as of the date of publication, expire until the end of 2016. That credit also can be used on a second home.

Claiming the Credit

However you choose to heat your home, claim the credit by filling out IRS Form 5695 and filing a 1040 long-form tax return. Other than a geothermal heat pump, which gets reported on the front side of the 5695 form, furnaces, fans and air-source heat pumps get reported on line 24 on the back of the form. Once you calculate your total credit, carry it over to line 52 on your 1040. The IRS caps you at a maximum of $500 of credits claimed between 2006 and 2013, but geothermal heat pumps are excluded from this limit.

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