Installing a new air conditioning (AC) unit often comes with a hefty price tag, leading many homeowners to wonder: Can you claim a new AC unit on your taxes? This comprehensive guide explores how federal and state tax benefits, energy efficiency credits, and local incentives can offset the cost. Learn which AC upgrades qualify for tax deductions or credits, documentation tips, and the latest regulations to help you maximize your savings legally and efficiently.
Key Considerations When Claiming A New AC Unit On Taxes
| Criteria | Eligibility Details |
|---|---|
| Energy Efficiency | Qualifies if the AC unit meets ENERGY STAR or similar federal standards |
| Type of Upgrade | Central air conditioners, heat pumps, and certain ductless systems are often eligible |
| Tax Benefit Type | Federal tax credits, state/local rebates, property tax exemptions, and business deductions |
| Filing Requirements | Proper documentation, receipts, and certification forms required |
| Tax Year | Must be claimed on the return for the year of installation |
Federal Tax Credits For New AC Unit Installations
Energy Efficient Home Improvement Credit (25C)
Since January 2023, the IRS offers the Energy Efficient Home Improvement Credit (25C) under the Inflation Reduction Act. This credit allows homeowners to claim a percentage of the cost for qualifying energy-efficient home improvements, including some central air conditioners and heat pumps. To qualify, the installed unit must meet ENERGY STAR certification and specific Seasonal Energy Efficiency Ratio (SEER) ratings. For central AC units, the maximum credit is 30% of the total cost, up to $600 per unit annually.
Qualifying HVAC Equipment
- Central air conditioning systems (with qualifying SEER ratings)
- Heat pumps (air source, ductless mini-splits with high efficiency)
- Advanced electric or natural gas HVAC systems
Non-qualifying units include window ACs and units not meeting energy efficiency requirements.
How To Claim The Federal Credit
Homeowners must file IRS Form 5695 (“Residential Energy Credits”) with their annual tax return. It’s important to retain proof of purchase, installation receipts, and the Manufacturer’s Certification Statement, confirming the unit’s eligibility. Attach these records in case of audit requests by the IRS.
State And Local Incentives For AC Upgrades
Beyond federal credits, many states and municipalities offer their own incentives for installing energy-efficient AC units. These incentives can range from direct rebates and grants to property tax abatements and sales tax exemptions.
- California: The California Energy Commission provides rebates for high-efficiency HVAC systems through local utility programs.
- New York: NYSERDA offers significant rebates for ENERGY STAR AC units, plus additional credits for low-to-moderate income homeowners.
- Texas, Florida & Arizona: Utilities often give rebates for eligible AC upgrades, especially during energy efficiency campaigns.
Always check the Database of State Incentives for Renewables & Efficiency (DSIRE) for up-to-date programs in your zip code.
Business Owners: Commercial HVAC Deductions And Section 179 Expensing
For small businesses and landlords, the rules differ slightly. New HVAC installations in commercial buildings may qualify as a deductible expense under Section 179 of the Internal Revenue Code.
- As of 2025, businesses can deduct the full cost (up to $1.16 million) of eligible HVAC systems placed in service during the tax year.
- Energy efficiency improvements can also qualify for additional credits under the 179D Commercial Buildings Energy-Efficiency Tax Deduction.
Organizations must retain all purchase and installation documentation, and sometimes an engineer’s certification for larger credits.
Qualifying AC Units: What Counts For Tax Credits?
Technical Requirements
A new AC unit must typically meet rigorous standards to qualify for tax credits or deductions. Here’s what to look for:
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- SEER (Seasonal Energy Efficiency Ratio): Minimum ratings set by ENERGY STAR, which may vary by state
- Split versus packaged systems: Both may qualify if meeting efficiency benchmarks
- Installation quality: Professionally installed units with certified documentation
Documentation Needed
Important documents to keep include:
- Purchase invoice and proof of payment
- Installation service receipt
- ENERGY STAR or Manufacturer’s Certification Statement
- IRS Form 5695 for personal filings or Form 4562/179 for business
When Can You Not Claim A New AC Unit?
Some AC installations do not qualify for tax credits or deductions:
- Window AC units and portable models without ENERGY STAR qualification
- Units installed in rental properties (for personal credits like 25C, but see business section for Section 179)
- Upgrades not meeting minimum efficiency requirements
Always verify eligibility before filing to avoid IRS penalties or denied claims.
Claiming A New AC Unit On Taxes As A Home Improvement
If the AC installation is part of a significant renovation, it may increase the home’s cost basis for capital gains tax purposes. While this doesn’t offer an upfront deduction, it could reduce taxable gains if the property is sold later.
Special Cases: Rental Properties And Mixed-Use Homes
If you own a rental property, a new AC unit doesn’t qualify for residential energy credits but is considered a capital improvement. You must depreciate it over its useful life (typically 27.5 years for residential rental real estate).
For mixed-use homes (part residence, part rental/business), only the percentage used for personal residence is eligible for energy credits. The business portion is depreciated.
Filing Tips: Maximizing Your Tax Benefits
- Double-check eligibility: Always confirm that your specific AC make and model qualify for federal/state programs.
- Keep thorough records: Retain receipts, certifications, and any energy audit documentation.
- Consult a tax advisor: For significant upgrades or business installations, a CPA can help maximize available benefits.
- Check carryforward options: Some credits can be carried forward if your tax liability isn’t high enough to use them immediately.
Stay updated on evolving IRS regulations and state programs each tax year.
Frequently Asked Questions About Claiming AC Units On Taxes
-
Can I claim tax credits if I finance my new AC unit?
The IRS allows you to claim the total cost, including what is financed, as long as the system is installed and operational by December 31 of the tax year. -
Are installation and labor costs included?
Yes, labor and installation are included in the total cost when calculating the 30% credit (up to the maximum allowed limit). -
Are tax credits refundable?
Federal energy tax credits are non-refundable, meaning they reduce your owed taxes but do not generate a refund beyond your tax liability.
How To Find Qualifying AC Units And Verify Your Tax Credit
- Check the ENERGY STAR website to search for qualifying models, or ask your HVAC contractor for certification documents.
- Read the IRS guidelines for Form 5695 to ensure you are following 25C criteria for your upgraded system.
Case Examples: Tax Credit Scenarios For A New AC Unit
| Scenario | Eligibility | Notes |
|---|---|---|
| Homeowner installs qualifying ENERGY STAR central AC for $5,000 | Up to $600 credit (30% capped per unit) | Needs Form 5695, receipts, and manufacturer’s certificate |
| Business installs new commercial rooftop AC for $20,000 | Full expense deduction under Section 179 | Deducts cost in single year |
| Landlord upgrades rental property AC with non-qualifying model | Not eligible for 25C credit | Capitalizes and depreciates as a property improvement |
Top Mistakes To Avoid When Claiming AC Units On Taxes
- Claiming ineligible units: Only high-efficiency and ENERGY STAR-compliant systems are credited.
- Forgetting documentation: Missing certification or receipts can result in denied credits.
- Overlooking state/local rebates: Many rebate programs must be claimed soon after installation.
Resources For AC Tax Credits And Rebates
- IRS Instructions for Form 5695
- ENERGY STAR Certified Appliances Search
- Database of State Incentives for Renewables & Efficiency (DSIRE)
Final Tips: Maximizing Savings On Your New AC Unit
- Install during tax credit windows: Some benefits decrease or expire after certain years.
- Combine federal credits with local rebates: Layering programs can maximize cost savings.
- Consider energy audits: Some utility companies offer free or discounted audits, required by some incentive programs.
With careful planning and the right documentation, the cost of a new high-efficiency AC unit can be significantly reduced through available tax credits and incentives, making both environmental and financial sense for American homeowners and business owners alike.