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Serch
New Member

What income level the tax energy credit phase out?

I am planning to buy a new HVAC system. However I need to go with a more efficient energy model than what I want. The more efficient is more expensive but I would get the tax credit. My question is does the energy tax credit apply independently of income or it phases out at certain income level?
3 Replies
DoninGA
Level 15

What income level the tax energy credit phase out?

There is no income limit for the Residential Energy Credit.  

The maximum credit for an eligible HVAC system is $300 if installed on your main home in 2021.

 

This credit is limited as follows.
• A total combined credit limit of $500 for all tax years after 2005.
• A combined credit limit of $200 for windows for all tax years after 2005.
• A credit limit for residential energy property costs for 2021 of $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property

Mike9241
Level 15

What income level the tax energy credit phase out?

My question is does the energy tax credit apply independently of income or it phases out at certain income level? 
a qualified  HVAC has a maximum credit of $300. the actual credit allowed is limited by a tax lianility computation line 29 of Form 5695
 
form 5695 instructions
Line 22a. Enter the amounts you paid for energy-efficient building property. Energy-efficient building property is any of the following.
....
A central air conditioner that achieves the highest efficiency tier that has been established by the CEE as in effect on January 1, 2009.
....
Don't enter more than $300 on line 22a
 
Opus 17
Level 15

What income level the tax energy credit phase out?


@Mike9241 wrote:
My question is does the energy tax credit apply independently of income or it phases out at certain income level? 
a qualified  HVAC has a maximum credit of $300. the actual credit allowed is limited by a tax lianility computation line 29 of Form 5695
 
form 5695 instructions
Line 22a. Enter the amounts you paid for energy-efficient building property. Energy-efficient building property is any of the following.
....
A central air conditioner that achieves the highest efficiency tier that has been established by the CEE as in effect on January 1, 2009.
....
Don't enter more than $300 on line 22a
 

No, it does not phase out at high income.

 

It may be unavailable at low income if you pay no tax already.  For example, if you have 2 kids and owe $6000 in income tax, the child tax credit will zero out the income tax due and there won't be any tax to apply the energy credit to.

 

Your tax liability is not your refund, it is the amount of tax you actually pay to the government.  For example, if you had $5000 of W-2 withholding and get a $3000 refund, your tax liability was $2000, and that could be further reduced by the energy credit.  However, if you had $5000 of withholding and got a $6000 refund, that's your full withholding plus an additional $1000 of refundable credits.  You don't have a tax liability to apply to the energy credit. 

 

Your tax liability is line 21 on your 2020 form 1040.  If you have children under age 17, reduce that by a further $1000 for each child.  That will be approximately your tax liability for 2021.  If that is more than $500, you would get the full benefit of the energy credit.

 

Incidentally, an HVAC system could qualify for the full $500 if you have an invoice that breaks down the components.  You can get $300 for the air conditioner component (if it meets the A/C standard), $150 for the gas furnace component (if it meets the furnace efficiency standard), and $50 if the system includes an advanced circulating fan.  But you would need a breakdown showing the cost of each component.   If you just have a total price invoice, the IRS would want to know how you  determined the furnace cost $1500 (to get $150) and the A/C cost $3000 (to get $3000), instead of some other breakdown.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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