Q: **Update** How does the Advanced Main Circulating Fan credit work?

A: The stimulus bill expanded the tax credit for advanced main circulating fans from a straight $50 credit for any furnace equipped with such a fan to 30% up to $1,500 for advanced main circulating fans that account for less than 2% of the furnace's total annual energy used (based on standard Department of Energy test procedures). There remains uncertainty how the credit can be claimed on an advanced fan installed as part of a non-qualifying furnace (less than 95% AFUE). HARDI just received indication from the IRS that they are currently intending to interpret this credit to mean that any advanced fan-equipped furnace that has less than a 95% AFUE can only qualify the costs specific to the advanced fan, not the entire furnace, for the tax credit. Equipment manufacturers are currently pursuing and expedited official IRS clarification that will hopefully provide concrete certainty soon, but the latest indication is that only the costs specific to the advanced fan will qualify for the tax credit on furnaces less than 95% AFUE. HARDI advises that members refer to their tax professionals before recommending to customers what will and will not qualify for this tax credit.

**Update on Non-Refundable Tax Credits

As an update to this earlier post regarding these "non-refundable HVAC tax credits", here is a boiled down recommendation on how contractors should explain these tax credits to homeowners:

The HVAC tax credits are non-refundable tax credits which means that they can only be claimed if the taxpayer owes as much or more in taxes than the tax credits they are filing for. This can vary tremendously from taxpayer to taxpayer due to personal or household deductions, other credits, and the Alternative Minimum Tax so homeowners need to check with their tax advisor to determine whether they will most likely be able to qualify for a $1,500 tax credit.

**Updated** Q: Are these tax credits limited by the AMT?

A: The original 2006-2007 tax credits were limited by the Alternative Minimum Tax, but the American Recovery and Reinvestment Act of 2009 lifted that limitation for these expanded residential energy efficiency credits for 2009. This tax credit claimed in 2010, however, is still limited by the AMT unless Congress amends the credit again.

The geothermal, solar, and wind upcapped tax credits are also not limited by the AMT through 2016. When these credits are not limited by the AMT, the taxpayer's total tax credit limit is determined by the sum of the taxpayer's tax liability PLUS the AMT.

Q: If a homeowner claims a $1,500 credit for installing a qualified appliance, are they still eligible for the solar or geothermal credit?

A: Yes. The capped $1,500 tax credit for most HVAC equipment is separate from the uncapped geothermal, solar, and wind tax credit. For example, a homeowner could install a qualifying water heater and claim 30% of the installation costs up to $1,500 then install a geothermal heat pump and claim up to 30% of that total installation cost as well.

Q: What if two components are being installed but only one qualifies for the tax credit?

A: For example, a non-qualifying central air-conditioning system is installed at the same time as a qualifying gas furnace (or vice versa). In this case, only 30% of the costs, up to $1,500, associated with the furnace installation would qualify for the tax credit. Energy Star just updated their FAQ on this as well.

Q: Can total installation costs be included in a claim for these tax credits?

A: For HVAC, geothermal, solar, and wind installations, yes, but only material costs qualify for windows, insulation, and roofing improvements. Energy Star recently updated their FAQ site on this point which you can see here.

Energy Star Updates Answer to Advanced Fan Credit Question

Energy Star recently posted this answer to their FAQ's which was reviewed and approved by the IRS regarding how to determine what qualifies for the advanced main circulating fan tax credit. This is still unresolved but HARDI and other industry groups are working together to expedite a detailed IRS determination.