Tax Credit for Installing an Air-Conditioning Unit in Your Home

Types of Tax Credits

The federal government provides the primary tax credit for installing a new air-conditioning unit. The federal tax credit depends on the provisions enacted by Congress. In addition to a federal tax credit, some states provide taxpayers with tax credits on their state income tax returns. The federal tax credit varies based on the type of equipment installed. One credit reimburses taxpayers only for air-source heat pumps, and another credit applies only to central air-conditioning systems.

Only some air-conditioning units qualify for the tax credit. Foremost, the federal tax credit only applies to air-conditioning units installed in an individual's principle residence. Rental properties do not qualify. Only existing residences qualify, too. You cannot claim the tax credit for a newly constructed home. The air-conditioning system also must meet federal standards. For 2011, these standards included a 13 EER and 16 SEER minimum rating. These ratings relate to technical aspects of the air conditioning systems, and the products are rated by their manufacturers, who must provide buyers with a manufacturer's certification that they meet the listed performance ratings.

The government determines the amount of a tax credit for installing an air-conditioning unit by applying a percentage and a maximum allowance. For tax year 2010, the federal tax credit reimbursed taxpayers up to 30 percent of the cost of the new unit up to a maximum of $1,500. For 2011, the tax credit maximum was $500, and the percentage was 10 percent.

The time period for a tax credit generally ends each year unless the credit is tied to multi-year legislation. In 2011, Congress passed a new tax credit law that applied only to 2011. This replaced the prior tax credit, which expired on Dec. 31, 2010. The tax credit only applies to units installed during the tax year. Thus, a taxpayer must claim a credit for an air-conditioning unit installed in 2010 on his 2010 tax return. He cannot claim a credit during the 2011 tax year. If a taxpayer already filed a return without the inclusion of the tax credit, he can file an amended return and could receive a tax refund as a result.

To apply for a federal tax credit for tax years 2010 and 2011, you must file IRS Form 5695 with your tax return. On IRS Form 1040, you also need to list your tax credit on line 52. In addition to the forms, you must save your receipts and the manufacturer's certification statement. You will need this information as proof that you qualify for the tax credit.