The Feds allow a suite of energy tax credits for heating and cooling systems and related energy-efficiency improvements.Read on to learn more.The BasicsLifetime credit max of 10% of costs, up to $500 for all energy improvements combined.File IRS Form 5695 with your returns. This can be tricky, so pay attention to the details.You must have installed a relevant heating and cooling system by Dec. 31, 2016.Save manufacturer certifications and receipts in case you need them for filing.Although there is a $500 overall ceiling, some improvements have individual limits below $500:$50 for any advanced main air-circulating fan.$150 for any qualified natural gas, propane, or oil furnace or hot water boiler.$300 for any qualified item of energy-efficient building property, as specified by the IRS. In previous guidance, this category included certain approved electric and geothermal heat pumps, central air conditioning systems, and natural gas, propane, or oil water heaters.The Energy Star site has guidelines on what heating and cooling systems are covered.

It’s your safest bet for information on which kinds of systems and individual products get you the credit.Don’t rely solely on contractors who may not know the details of the energy tax credit program or who promise their products will get the credit in order to make a sale.What Efficiency Means to Your WalletThe tax credit makes it a little easier to do what you should do anyway. Upgrading your heating, ventilation, and air conditioning (HVAC) to energy-efficient units can cut utility costs by about 20%, or $200 annually, on average.However, you need cash to get going — these upgrades aren’t cheap. Although prices vary, keep in mind that:A high-efficiency furnace starts around $3,500, including installation, estimates Corbett Lunsford, executive director of Chicago-based Green Dream Group, an energy-efficiency and eco-consulting firm.A standard furnace may cost $2,400.Not All Heating and Cooling Systems Qualify for Tax CreditNot even every product with an Energy Star rating will get you the tax credit.

Energy Star-rated furnaces must be more efficient than standard units, with annual fuel utilization efficiency ratings (AFUE) of:85% for oil furnaces90% for gas furnacesAFUE ratings must be higher for credit-eligible furnaces:Gas (either natural gas or propane): 95%Oil: 95%Boilers must have an AFUE of 95%.Central air-conditioners:Split Systems:SEER>= 16EER >= 13Package systems:SEER >= 14EER >= 12Note: Energy Star may update these criteria at any time, so check online before making a purchase.Payback and Benefits of HVAC ReplacementIt typically takes about a decade’s worth of energy savings to recoup the investment in a new HVAC system, Dream Group’s Lunsford says, though that time frame can vary greatly depending on fuel price fluctuations.Less apparent in dollar terms — but still valuable — is the increasing comfort level in your home and lowering your household’s drain on non-renewable fossil fuels.You’ll get a bump up in salability when you’re ready to move on, says Frank Lesh, president of Home Sweet Home Inspection Co. in Indian Head Park, Ill.

That doesn’t mean adding a $5,000 furnace will add $5,000 to the sale price. Rather, potential buyers are less likely to push for repairs or negotiate a credit if the HVAC is in good shape.prices for ac window unitsBut before you do, conduct an energy audit of your home. central ac units maintenanceLunsford, also manager of consumer education for the U.S. Green Building Council’s Chicago Chapter, says he rarely recommends replacing a furnace as the first step in making a home more energy efficient.ac unit american standardStart by sealing it against air leaks:Do-it-yourself caulking and weatherstripping help, as does adding insulation in the attic.Professional air sealing, which is more effective, can cost as much as $5,000 for a large house, he says.

The payoff: Energy costs should go down, and you might get by with a smaller HVAC system.AMERICAN TAX PAYER RELIEF ACT OF 2012 As a part of the recently passed American Tax Payer Relief Act of 2012, Congress modified and extended its energy efficiency tax credits for appliances, new homes and retrofits to existing homes, which includes the 25C heating and cooling equipment tax incentive for 2012Thanks to the federal legislation retroactively extending previously available tax credits, homeowners may be eligible for a tax credit if they purchase or purchased certain types of heating, ventilation and air conditioning (HVAC) systems, water heating equipment, or make other energy-related improvements to their homes between January 1, 2012 and December 31, 2016. legislation extends the cumulative cap of a $500* maximum tax credit. As a leader in producing energy-efficient home comfort solutions, Trane offers many products that are eligible under this new law.

Depending on the type of system or product purchased, it may be possible to qualify for a 25C tax credit of up to $500* on your incomeIRS form 5695 will need to be filed with your return. ENERGY IMPROVEMENT AND EXTENSION ACT OF 2008 (H.R. 1424) Geothermal tax credits are also available for home owners who install geothermal heating and cooling systems through the Energy Improvement and Extension Act of 2008 (H.R. 1424). H.R. 1424 offers a onetime tax credit of 30% of the total investment for homeowners who install residential ground loop or ground water geothermal heat pumps that meet or exceed Energy Star requirements and are installed afterThe tax credit is available through December 31, 2016. Consult your local tax professional for advice on taking advantage of this tax credit. HOW DO I APPLY FOR A TAX CREDIT? For qualified HVAC improvements, homeowners may be able to claim 25C tax credits equal to 10 percent of the installed costs (up to $500

The extended tax credit is in effect for all qualifying systems and products installed during the 2012 through 2016 calendar years and expires on December 31, 2016. improvements, homeowners may be able to claim HR 1424 tax credits equal to 30% of the total installed costs. Subject to IRS regulations, tax credits apply as a direct reduction of taxes owed. directed taxpayers to use Form 5695 to calculate and file for theirCustomers should consult with a tax professional to fully understand how the tax credits may apply to you, what you can do to obtain one, and for advice on and/or assistance WHICH PRODUCTS ARE ELIGIBLE? The following residential Trane products qualify for a federal tax credit: Split system air conditioning – that meet 25C requirements of 16 SEER/13 EER (both efficiency levels must be met to qualify for Split system heat pump – that meet 25C requirements of 15 SEER/12.5 EER/8.5 HSPF (all three efficiency levels must be met to

qualify for the tax credit) Gas furnace – that meet 25C requirements of 95% AFUE Advanced main air circulating fan - gas furnace or packaged system with an advanced circulating fan that utilizes no more than 2% of furnace total energy use per 25c requirements. Packaged air conditioning, heat pump or dual fuel products – that meet 25C requirements of 14 SEER, 12 EER, 8 HSPF Geothermal Systems-Energy Improvement and Extension Act of 2008H.R. 1424 offers a onetime tax credit of 30% of the total investment for systems that meet or exceed Energy Star requirements and be installed after December 31, 2007. *Maximum 25C tax credit amount - is $500 and is available for respective products in the following amounts: $300 maximum for a qualifying air conditioning system, heat pump or packaged system, $150 maximum for a qualifying furnace, and $50 maximum for a qualifying product with an advanced circulating fan. The tax credit is effective