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New AC and Furnace qualfiy for $600 credit each?

dhoyt
Level 3

This seems like a silly question, but I'm just trying to make sure I'm understandiung the Residential Energy Property credit correctly. If a taxpayer has a new split system put in their home which includes a new central AC and a new furnace, they can take $1200 credit if both the furnace and the AC meet the energy requirements, correct? We would need the cost of each unit separately, but how should we allocate labor if the contractor didn't separate the cost of instaling each component?

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I don't know how things are in other parts of the country but here in IL, a furnace inside the home and an a/c outside in the backyard are a split system.  And one can be installed completely separately from the other.  If they each otherwise qualify, you have up to $1200 in credits.

Think of it this way.  You could do the ac in 2023 and because the cost is obnoxious, hold off on doing the furnace until it dies in 2025.  No question there about two credits. 

As for the paperwork, see if they can write it up as two projects.  Or if not, allocate the labor on some reasonable basis.  Or maybe the cost of the units themselves are such that the labor component is irrelevant.

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19 Comments 19
Just-Lisa-Now-
Level 15
Level 15

Isnt a split system all one unit?


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IRonMaN
Level 15

A "split system" is singular rather than plural so it does kinda sound like one unit, doesn't it?


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dhoyt
Level 3

I guess that is where my confusion comes in, as I'm not an HVAC tech. Lol. My understanding is that a Split system refers to the fact that part of the system is outside, and part inside.The air handling unit is inside in a closet, but the condensor and other components of the AC are outside the house. The furnace is usually attached at the air handling unit inside as well. But concevably you could have an AC unit without a furnace and it woud still be a split system I believe. You could also probably replace the condensor and air handling system of the AC, and not replace the furnace. I could be wrong on all of that but this is why I have the question in the first place.

This is from an HVAC  website https://www.carrier.com/residential/en/us/products/air-conditioners/what-is-split-system/

"A split HVAC system is an air conditioning system or heating system that has both indoor and outdoor units that are connected with copper tubing.

Traditionally, the outdoor portion of the unit contains the compressor and condenser, and the indoor portion of the unit contains an evaporator coil and indoor air handling unit that sends the air through the ductwork in your home. These types of HVAC systems are different from HVAC packaged units, where all parts are packaged together in one unit.

There are many different types of split systems, which can include heat pump systems or air conditioning systems (larger homes might require multiple air conditioners) installed outside your home, paired with either a gas furnace or a fan coil located inside your home."

Further the IRS instructions say this

  • $600 for central air conditioners.

  • $600 for natural gas, propane, or oil water heaters.

So my thinking is that, although it is all one connected  HVAC system, it is made up of 2 different components: a central air conditioner and a natural gas furnace, so each of those components should be a separate $600 credit. But I've been unable to find anything to confirm or deny this understanding.

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qbteachmt
Level 15

AC always has external components.

Your taxpayer doesn't have Central AC if they have a Split. That's a difference.

AC components are external to allow the condenser to shed heat.

A Split component that is internal would be the wall-mounted vent with a fan (distribution controls), sort of like you see a wall-mounted radiator (although it's not a radiator). A central system works with duct work (integral and multiple distribution points; may have zones and zone controls) and not direct to a vent unit that is internal.

Think of it as: Split = one to one (external to internal)

Central = one to many (external to internal)

That's a basic overview.

A Split system would not be treated as two parts. A central system might even have three parts, now: Heat, AC, and HRV/ERV (efficiency recovery).

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dhoyt
Level 3

I think you are refereing to what is called a ductless system or mini-split as a "split system."  Central AC can be a "split system." Here is a reference: https://iwae.com/resources/articles/split-system-need-one.html#:~:text=A%20split%20system%20is%20an,....

"An air conditioner split system is the most common form of home cooling in the United States. Most homes with a central air conditioning system use a split system. This is the basic setup we've been talking about in this article: inside air handler, outside condenser, and refrigerant lines that connect the two. "

 

Just-Lisa-Now-
Level 15
Level 15

Could one have been installed without the other? 

If not, its all one unit.


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dhoyt
Level 3

Again I'm not an HVAC tech, but my research shows yes they can be installed separately. Here's another reference: https://yourairexperts.com/blog/furnace-and-ac-connected/#:~:text=Not%20all%20homes%20will%20have,no....

"Understanding the difference between a forced air system and a central air system can help you differentiate the roles of each in your HVAC system. Essentially, a forced air system encompasses the entirety of HVAC systems that move temperature-controlled air into your home with ducts and vents. Examples of forced air systems are your furnace or your heat pump (if you have one).

Central air conditioning uses a closed loop of refrigerated/cycled air to deliver cool air when needed to combat the North Carolina summer heat. Both your forced air (furnace) and central air (AC) systems use the same parts to cool and heat your home.

The outdoor condenser and compressor, indoor fans, and evaporator coils cycle refrigerant and draw hot air inside while releasing heat, then draw cooled air back through your vents.

In other words, your central air conditioning system is independent of your furnace. The outdoor unit isn’t connected to the furnace at all — but they both use the same distribution system (vents, plenums, and ducts) to cycle cool air into your home."

I think that last part I underlined is the key that makes me feel the furnace and central air system are 2 different units that each qualify for $600. You could install  or replace your AC one year and your furnace a year later. Although typically people replace the whole thing at the same time, they are two different units, although they use the same distribution system.

I don't know how things are in other parts of the country but here in IL, a furnace inside the home and an a/c outside in the backyard are a split system.  And one can be installed completely separately from the other.  If they each otherwise qualify, you have up to $1200 in credits.

Think of it this way.  You could do the ac in 2023 and because the cost is obnoxious, hold off on doing the furnace until it dies in 2025.  No question there about two credits. 

As for the paperwork, see if they can write it up as two projects.  Or if not, allocate the labor on some reasonable basis.  Or maybe the cost of the units themselves are such that the labor component is irrelevant.

Just-Lisa-Now-
Level 15
Level 15

Yes, it sounds like 2 different systems.


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pat-mcdaniel
Level 1

My understanding is that the system has to have a SEER of 16 to qualify for this credit.

 

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BobKamman
Level 15

@Frustrated-in-IL Brings back memories of the house I had 40 years ago.  Gas furnace inside, A/C unit (and an evaporative cooler, you people back East don't know what those are, and yes everyone east of the Mississippi is back East) outside.  Same vents but there was a baffle that we had to insert or remove twice a year.  

Camp1040
Level 10

I have a package unit in the south, heat and AC are both outsidein one unit.  I have a one story and duct work runs through the crawl space. Two story homes have one heat and air package unit outside, plus and additional compressor outside, and a furnace in the attic with a evaporator coil. 

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TaxGuyBill
Level 15

@pat-mcdaniel wrote:

My understanding is that the system has to have a SEER of 16 to qualify for this credit.

 


 

No, it needs at least a SEER2 of 16.

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dhoyt
Level 3

That is exactly my reasoning. I think most people who have their HVAC replaced think of it all as one unit. But it is really 2 units that run through the same distribution system, and therefore both could qualify for the credit. AC needs to be 16seer or greater and Furnace needs to have 97% or greater AFUE rating. The exception is a heat pump which is all one unit for both heat and cool outside the house. 

But I'm glad my initial question wasn't as "silly" as I thought. It sparked a good conversation. Thanks to all who contributed!

qbteachmt
Level 15

"I think that last part I underlined is the key that makes me feel the furnace and central air system are 2 different units that each qualify for $600."

You are the one using "Split" to explain this system. I was pointing out a Central AC isn't also a split system, even though parts are outside and parts are inside. My furnace's duct system was "AC ready" and later we added the AC, but that reflects a Central system. It feeds into the plenum. This is not a Split system. It's two different units, and the AC always has a part that is outside.

"But I'm glad my initial question wasn't as "silly" as I thought."

We can only rely on what other's tell us.

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TaxGuyBill
Level 15

@qbteachmt wrote:

I was pointing out a Central AC isn't also a split system, even though parts are outside and parts are inside.


 

The AC *IS* a split system.  That is what the outside and inside refer to.  Most residential AC systems are "split".

There are also "package" systems where everything is together (larger units are usually outside; both AC parts plus the heat) and then the air is blown into the building.  A window air conditioner, in-the-wall units (the kind at most hotels) or a big HVAC unit on the top of a commercial building are examples of that.

 

mhs1826
Level 1

I have a client who installed a ductless mini split heat pump system.
So I had the same question - can I take a credit to for both AC & Heat Pump.
I think Lisa has the right idea - If the interior and exterior components can't function independently from each other it is a single unit allowing for a single credit. That is the case for ductless mini split heat pump system.as far as I know. 

TaxGuyBill
Level 15

@mhs1826 wrote:


So I had the same question - can I take a credit to for both AC & Heat Pump.


 

No.  It isn't an AC, it is a Heat Pump.

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Camp1040
Level 10

I missed the word ..heat pump.

@TaxGuyBill  has the answer, a heat pump is one unit, just runs the opposit way depending on the temparture differential you ask for at the thermostat.

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