Federal Tax Credits

Uncle Sam wants to reduce national energy costs, and is willing to lower your tax burden in order to prod you along.  These tax incentives reduce the priace tag of energy-efficient home improvements, encouraging home owners to make less energy intensive choices.

Energy Efficient Home Improvement Credit (Section 25C)

This is part of the broader category of residential energy efficiency incentives under the Inflation Reduction Act (IRA) of 2022. The credit applies to specific types of high-efficiency HVAC systems. The key elements are:

Eligible Systems: High-efficiency air conditioning and heating systems, heat pumps, and air-source heat pump systems.

Credit Amount: Homeowners can claim up to 30% of the installation cost for qualifying HVAC equipment, with a maximum credit of $600 per year for individual systems (like a central air conditioner or heat pump).

Qualifying Products: To qualify, the equipment must meet the efficiency standards set by the IRS, typically those certified by ENERGY STAR or other recognized programs. These include heat pumpt, which must meet specific SEER (Seasonal Energy Efficiency Ratio) or HSPF (Heating Seasonal Performance Factor) ratings, depending on whether the system is for cooling or heating.  Likewise, air conditioners and furnaces must also meet ENERGY STAR ratings for energy efficiency.

Claiming the Credit: No one enjoys IRS forms, but this one is worth paying attention to.  Homeowners must complete IRS Form 5695, which applies to both the Energy Efficient Home Improvement Credit and other energy-saving measures like insulation, windows, and doors. The credit can be claimed on your annual tax return.

Eligibility: The credit is available for primary residences only. Second homes do not qualify for these incentives.

Expiration Dates: Tax credits for energy efficiency measures like HVAC upgrades have been extended under the IRA, but the specifics may change yearly. Be sure to confirm the current year’s eligibility when filing taxes, as some credits may phase out or require updated guidelines.

Example: Say you install an ENERGY STAR-certified heat pump costing $4,000, you can potentially receive a tax credit of up to 30% of the price (i.e., $1,200), provided it meets the necessary efficiency standards.

Manufacturer Rebates

Furnace manufacturers offer rebates encouraging homeowners to upgrade to high-efficiency systems. These manufacturer rebates can be a great way to reduce the initial cost of purchasing and installing a new furnace:

Seasonal Promotions: Many furnace manufacturers run seasonal rebate programs, often timed to coincide with heating season (fall and winter) or spring sales events. These promotions offer instant rebates or mail-in rebates when you purchase and install qualifying models. The rebate amount can vary, but it often ranges from $100 to $1,500.

Check Eligibility Requirements: Rebate offers from manufacturers often have specific eligibility requirements. These may include purchasing certain models, meeting minimum efficiency ratings, or installing the furnace through an authorized dealer or licensed contractor.

Remember Mail-in Rebates: In many cases, manufacturers offer mail-in rebates. This means you would pay for the furnace upfront, and then submit proof of purchase (such as receipts and model numbers) to the manufacturer for a refund. 

Look for Instant Rebates: Some manufacturers provide instant rebates, which are applied at the point of purchase. These rebates typically don’t require you to submit documentation after the purchase, making them more convenient. The rebate is deducted directly from the total cost of the furnace or installation.

Keep in Mind Expiration Dates and Program Limits: Manufacturer rebate programs often have expiration dates or limited time frames, so it’s important to act quickly if you’re interested in taking advantage of the offer.

Furnace Quality

As a general rule, you get what you pay for.  Furnaces vary significantly in quality, directly impacts their efficiency, durability, and performance. The difference in quality comes down the efficiency rating, materials used, technology features, and warranty. Here’s a breakdown:

Brand Reputation:  High-end brands like Lennox, Carrier, Trane, and Rheem are known for their long-lasting, energy-efficient, and reliable furnaces. These brands often use advanced technology and offer better warranties. They also tend to have better overall build quality.  Mid-tier and budget brands, such as Goodman, York, and Amana offer more affordable options, but their overall quality might not match that of premium brands. While these furnaces can still provide reliable service, the trade off is shorter warranties and fewer advanced features.

Efficiency Rating (AFUE): Annual Fuel Utilization Efficiency (AFUE) is a key indicator of a furnace’s energy efficiency, measuring how much heat the furnace can produce for every unit of fuel consumed.  High-efficiency furnaces have an AFUE rating of 90% or higher, with some models reaching 98% or even higher. High-efficiency furnaces are more expensive upfront, but save significant amounts of money on energy bills over their lifespan.  Standard-efficiency furnaces have an AFUE of 80% to 85%. These furnaces are less efficient and tend to cost more in terms of ongoing energy consumption, but are more affordable initially.

Construction and Materials: Top furnace brands use better materials for critical parts such as the heat exchanger, blower motor, and burners. These parts last longer and resist wear. For example, heat exchangers made of stainless steel or aluminum tend to have a longer lifespan and better corrosion resistance than those made of standard steel.

Technology and Features: High-end furnaces come with advanced features such as variable-speed blower motors, smart thermostats, two-stage or modulating burners, and zoning capabilities. These features contribute to better comfort control, energy savings, and quieter operation.  Less expensive furnaces have single-stage burners and standard, non-variable-speed blowers. These systems are more basic and less energy-efficient, but they are still capable of providing heat.

Warranty: Higher-quality furnaces from reputable brands come with longer warranties. For example, a premium brand may offer 10 years or even lifetime warranties on key components like the heat exchanger, while providing more comprehensive coverage for other parts.  Budget-friendly models may only come with 5-year warranties or less on key components, with more limited coverage overall. These furnaces may require more frequent repairs or part replacements after the warranty period expires.

Energy Efficiency and Operating Costs: Higher-quality furnaces with advanced technology, such as modulating burners or two-stage operation, use energy more efficiently and can lower your long-term operating costs.  While higher-end furnaces are generally more expensive to purchase, they typically result in lower monthly heating bills due to better energy efficiency. Conversely, budget furnaces may have lower upfront costs but can lead to higher energy costs over time due to less efficient operation.

Noise Levels: Premium furnaces provide feature noise-reducing technologies, such as insulated cabinets and variable-speed blowers, minimizing sound during operation.  Lower-cost furnaces are noisier, especially if they have standard single-stage blowers or less insulation.

Reliability and Longevity: High-quality furnaces are built to last longer, often providing 15 to 20 years or more of reliable service. With proper maintenance, premium furnaces can continue running efficiently for decades.  Lower-quality furnaces have a lifespan of 10 to 15 years and may require more frequent repairs and part replacements. They may also experience issues sooner than higher-end models.

Install with a Smart Electrical Panel

A smart panel is a next-generation electrical panel integrating smart technology providing homeowners with greater control, monitoring, and energy management of their electrical systems.  The prospect of installing a smart panel often comes up with a new furnace installation since both encompass the overall topic of home energy usage and comfort.  A smart panel make homes more energy-efficient, secure, and sustainable. 

Key Benefits of a Smart Panel

Energy Efficiency: By providing visibility and control over your home’s energy usage, the SPAN Smart Panel helps homeowners identify inefficiencies and optimize their energy consumption, leading to cost savings on electric bills..

Environmental Sustainability: When integrated with solar panels and energy storage, the SPAN Smart Panel maximizex the use of renewable energy, reducing reliance on fossil fuels and decreasing the overall carbon footprint.

Cost Savings: By offering the ability to manage peak energy demand, the SPAN panel helps homeowners avoid higher electricity rates, particularly during times of high grid demand. Additionally, it can facilitate the use of cheaper off-peak electricity or solar energy, further reducing costs.

Improved Control and Convenience: Apps allows users to monitor and control energy usage remotely, offering convenience and flexibility. Homeowners can easily schedule energy-intensive activities, like charging their electric vehicle, during optimal times.

Future-Proofing: As the energy landscape evolves with more sustainable technologies and smart home systems, smart panels can be upgraded and adapted to new devices, making it a long-term solution.

Considerations

Initial Cost: The smart panel tends to be more expensive upfront than traditional electrical panels due to its advanced technology and integration capabilities. However, this cost may be offset by long-term energy savings and rebates from utility companies or tax incentives for energy-efficient home upgrades.

Installation: Installing a smart panel requires a licensed electrician, as it involves replacing the existing electrical panel.

Installing with an air conditioner

Installing an air conditioner at the same time as a furnace provides several significant benefits, both in terms of convenience and long-term savings. The main advantages:

Reduced Labor Costs: When both systems are installed at the same time, you can save on labor costs. The HVAC technician only needs to make one visit and perform the installation of both systems, which can reduce the overall cost of the installation compared to doing them separately at different times.

Bundle Discounts: Many HVAC companies offer discounts when you purchase both a furnace and an air conditioner together. By bundling the two systems, you might be able to access special deals.

Optimized Performance: Installing both a furnace and an air conditioner at the same time ensures that both systems are compatible with each other. Newer systems are designed to work together more efficiently, and installing them together helps ensure they operate optimally.

Coordinated Features: Modern furnaces and air conditioners often come with integrated features that improve performance when both are installed together, such as improved airflow, energy efficiency, and air filtration.

Energy-Saving Technology: Newer furnaces and air conditioners are often more energy-efficient than older models. Installing both systems at the same time allows you to take full advantage of the latest energy-efficient technology.

Coordinated Operation: When both systems are new and properly matched, they can operate more efficiently together. For example, a new furnace will be able to heat your home without overworking, and a new air conditioner can cool it without requiring as much energy, since both are designed to complement each other.

Consistent Indoor Climate: With both systems installed at the same time, your home will be better equipped to maintain a consistent indoor temperature. The furnace and air conditioner will both be working in harmony, ensuring that your home remains comfortable year-round, with minimal temperature fluctuations.

Better Air Quality: Modern HVAC systems often include high-efficiency air filtration and humidity control. Installing both systems at the same time ensures that these features are working together to improve your home’s air quality, keeping it fresh and healthy.

Longer Lasting Systems: By installing both systems together, you ensure that they are both new and designed to work together, reducing wear and tear on each system.

Single Maintenance Schedule: When both systems are installed at the same time, it’s easier to schedule maintenance for both the furnace and air conditioner on the same day.

Unified Service Plan: Some HVAC companies offer maintenance plans that cover both the furnace and air conditioner. Bundling these services can help reduce the overall cost of maintenance and ensure both systems are inspected and maintained regularly.

Same Warranty Period: When both systems are installed together, they are often covered by the same warranty period. This makes it easier to manage warranty claims and ensures that both systems are protected for the same duration.

Matching Equipment: Installing a new furnace and air conditioner at the same time ensures that both systems are modern, efficient, and compatible with each other. If you were to replace one system at a time, you risk mismatching older equipment with newer systems, which can lead to inefficiencies and performance issues.

Coordinated Sizing: Furnace and air conditioner systems need to be properly sized for your home to work efficiently. Installing them at the same time allows the contractor to properly size both systems to meet your heating and cooling needs, avoiding the potential for inefficiencies caused by incorrectly sized equipment.

Adequate Household Insulation

You wouldn’t run your furnace during the winter with the door open.  If your house isn’t adequately insulated, all of that heat you’re paying for is drifting through leaking windows and walls to the outside.  Here’s why insulation matters:

Prevents Heat Loss and Gain: Proper insulation maintains the desired temperature inside your home by preventing heat from escaping in the winter and keeping it out during the summer. When your HVAC system works in an insulated home, it doesn’t have to work as hard to maintain a comfortable indoor climate.

Reduces HVAC Load: Insulation reduces the load on your new HVAC system, meaning it doesn’t have to run constantly or at full capacity to keep your home comfortable. This results in lower energy bills and increased system efficiency.

Even Distribution of Temperature: Insulation ensures that your HVAC system can heat or cool the entire home more evenly. Without adequate insulation, some areas of your home may remain too hot or too cold, forcing the HVAC system to work harder to compensate for temperature imbalances.

Faster Response Time: A well-insulated home allows your HVAC system to reach the set temperature quickly because the temperature changes are less influenced by external weather conditions.

Less Wear and Tear: When insulation is lacking, your HVAC system has to work overtime to maintain comfort. Over time, this extra workload increasing wear and tear on components, shortening the lifespan of your system.

Fewer Repairs: With less strain on the system, the likelihood of experiencing mechanical issues or breakdowns is reduced, saving you on repair costs over time.

Consistent Indoor Climate: Insulation helps maintain a consistent indoor temperature by reducing drafts and preventing cold spots or areas that are too warm. This enhances comfort, as you won’t have to deal with fluctuating temperatures or an unevenly heated or cooled home.

Noise Reduction: Insulation can also act as a sound barrier, reducing the noise that can be transmitted from your HVAC system or from outside. This adds to the overall comfort of your home by keeping the environment quieter.

Preventing Air Leaks: Adequate insulation seals cracks and gaps causing air leaks, which in turn can affect indoor air quality. When your home is properly insulated, the air it circulates will be cleaner and more evenly conditioned.

Control of Humidity: Insulation helps with humidity control. Without insulation, your HVAC system struggles to regulate humidity, leading to mold growth or uncomfortable levels of moisture. Insulation keeps humidity levels in check, improving indoor air quality.

Take Advantage of Seasonality

Taking advantage of seasonality when purchasing a new furnace or air conditioning (A/C) system can help you save money and secure a better deal. Here are some strategies to capitalize on seasonal trends:

Furnaces: The best time to purchase a new furnace is typically during the spring or early fall. This is when HVAC companies are less busy, as most people focus on cooling during the summer or heating during the winter.

Air Conditioning Systems: For A/C units, the best time to purchase is typically during the fall or early spring, when cooling systems are not in high demand. You might also find that inventory is higher, and you can choose from a wider variety of models.

Labor: Installations tend to be less costly in the off-season due to lower demand for technicians’ time. If you schedule an installation during a quieter time of year, you may be able to negotiate better pricing or avoid rush fees  Also, HVAC technicians may have more availability to provide a quicker turnaround for installations and repairs during the off-season, which could help avoid delays and waiting times that are common in peak seasons (winter or summer).

Winter and Summer: These seasons see the highest demand for heating and cooling systems because of extreme weather conditions. Purchasing a furnace during winter or an A/C system during summer means you may face higher prices, longer installation wait times, and potential limited stock. Waiting for the off-season (spring or fall) can give you more leverage to negotiate pricing and potentially avoid price surges caused by high demand.

Consider buying and Installing Early:  If you know you will need to replace your furnace or air conditioner soon, consider purchasing it early in the off-season (even if you’re not yet ready to install). HVAC dealers may offer pre-season discounts for those who purchase in advance, and you can schedule the installation when the season changes.

Take Advantage of Year End Sales: Many HVAC companies and dealers offer significant discounts toward the end of the year as they clear out inventory before the new year. If you’re buying a furnace or A/C unit around December, you might find special promotions and end-of-year clearance sales.  In addition, some tax incentives or rebates may be available as the year closes out, which could further reduce the total cost of your new HVAC system.