Question: Are there any tax incentives available to homeowners?
Answer: There are many energy tax incentive programs available to the Arizona homeowner. Dennis Rodenberg of Thermal Advantage, LLC and Todd Russo with REEIS Air Conditioning, both Rosie on the House certified partners, offer tips to navigate the maze of options for taking advantage of these incentives (some of which fall under the Inflation Reduction Act).
Credit vs. deduction vs. rebate
Do you know the difference between these three types of monetary return compensations? If you plan on acting on one of these incentives, be sure you understand how they work before you move forward.
Tax credit: This is a direct reduction of your tax obligation. If you owe $1,000 and have a tax credit of $200, you only need to pay $800.
Tax deduction: The government allows a preset deduction from your taxable income and then calculates taxes due on the remaining amount. Typically, the amount is less advantageous from a real dollar standpoint.
Rebate: Rebates are distributed apart from your taxes. Rebates are often available from governmental entities, utility companies or private companies. Rebates are a cash distribution after you have spent the money on the goods and services you received.
Why Now?
As we approach the yearβs end, several possibilities come into play regarding the ability to recoup some of the costs you either spent or are contemplating spending on home improvements.
The tax credits, known as the Energy Efficient Home Improvement Tax Credit, become available after you purchase the goods and services that are eligible. To qualify for this credit, money for your project must be spent before the year ends.
Russo tells us several options are available from his companyβs perspective. The most lucrative incentive is a heat pump replacement, as the tax credit is up to $2,000. This deduction is deducted from your tax obligation. If your air conditioning system is at a tipping point, look at the credits available.
What makes your system reach a tipping point?
Age of your unit: If your system is 12 years or older in the desert areas, it may be getting close to needing replacement.
Energy consumption: Is it using more energy year over year?
Wear and tear: Are you replacing parts with more frequency?
Is the efficiency rating sufficient?
If any of these scenarios ring a bell, have your system checked out by a trusted professional. Other areas of our state will have different usage needs and may have some equipment lasting 20-plus years. Have an HVAC professional look your unit over if it is acting like an old car needing frequent repairs or guzzling gas.
What are the options, and can I mix and match?
The available incentives make a reasonably long list. Rodenberg and Russo recommend you visit the Energy Star website (energystar.gov/rebate-finder) for the many options. They include everything from HVAC equipment, insulation, doors, windows and skylights.
The items covered are consistent with improving the energy efficiency of your home.
The website mentions 15 different aspects of your home that may qualify for tax credits. Some of these categories can be paired to achieve credits for several home improvement projects. Rodenberg gives us an example of installing insulation in a block home. The insulation improves the efficiency of its cooling system in the valley and can qualify for the 30% tax credit.
Note: If you make multiple improvements, you can qualify for the tax credits associated with each improvement.
Planning
Consider coordinating your tax planning with the timing of your investment in an energy-efficient home improvement. Russo tells us that some clients with more than one air conditioning unit will purchase one unit this year and another in 2024 to take advantage of the credits over two years. This takes some planning, but not anything too sophisticated.
Rodenberg recommends you consider all your energy goals following a whole-house energy audit. Plan your improvements based on the needs of your home and how you want to take advantage of the tax credits.
How long do we have for these credits?
The legislation enabling the tax credits is in place until 2032. Both Rodenberg and Russo want us to know that the numbers are subject to change from year to year. While the tax credit allowance for heat pumps increased in 2023 from the year before, the opposite can also happen, so donβt wait too long.
What else is out there, and can they be combined?
There are other types of monetary incentives available. Russo says another reason for taking advantage of the incentives this time of year is that several equipment manufacturers offer discounts on their equipment as the year closes.
Also, several rebates may be applicable to your project, depending on your power supplier in Arizona.
Remember, a rebate differs from a discount and a tax credit, so plan your expenditures accordingly.
