Homeowner Tax Credit Guidance Finally Issued By IRS

The IRS has finally released a guidance document for the residential energy efficiency tax credits that were expanded and extended by ARRA, the stimulus bill. This guidance document specifically addresses the confusion surrounding the advanced main circulating fan tax credit, essentially reinforcing HARDI's interpretation that if the furnace does not qualify (sub-95% AFUE) then only 30% of the equipment and labor costs specific to the advanced fan to up to $1,500 are eligible for the tax credit. Here is the section from the guidance document:

Natural Gas, Propane, or Oil Furnace with an Advanced Main Air Circulating Fan. If a natural gas, propane, or oil furnace is qualified energy property, the entire amount paid or incurred to purchase and install the furnace, including any costs attributable to the furnace’s main air circulating fan, are taken into account in determining the amount of the credit under § 25C. If the furnace is not qualified energy property, but the furnace’s main air circulating fan is qualified energy property, only the amount paid or incurred to purchase and install the fan are taken into account in determining the amount of the credit under § 25C. In such a case-- (1) The amount paid or incurred to purchase and install the main air circulating fan may be determined by any method that reasonably allocates costs between the fan and other components of the furnace; (2) The manufacturer of the furnace may determine, using any reasonable method, the percentage of the cost of the furnace that is allocable to the fan and inform taxpayers of the percentage in the certification it provides under section 6 of this notice; and (3) A taxpayer may treat this percentage of the total amount paid or incurred to purchase and install the furnace as the amount paid or incurred to purchase and install the advanced main air circulating fan. If a manufacturer certifies the percentage of the cost of the furnace allocable to an advanced main air circulating fan, the manufacturer must maintain in its records the basis for such allocation. The manufacturer must, upon request, make such documentation available for inspection by the Service.

Here is Energy Star's FAQ response to the advanced fan credit question as well in case your customer is seeking additional information.