Air Apparent: Buying New Energy Efficient Appliances

Every summer, my husband and I have the same argument about whether we should get central air. We live in an old Victorian house in Philadelphia; it takes a while during the summer for the house to heat up but when it does, hoo boy, it gets hot. The thing is, it’s not easy to install central air in the house because of the layout – and there’s no existing ductwork.

This year, it’s even more complicated because our old heater has probably sputtered its last burst of warm air. When we bought our house (more than ten years ago), the heater was about 45 years old. So, well, you do the math. We know that we need to replace the heater but my husband wants to replace it with a heater/air conditioning unit – which brings us back to our original problem regarding the air conditioning.

We’ve been pushing off the decision for years (and years). But Congress may have successfully forced our hand. Under the current tax laws, we have until December 2010 to make up our minds and install a new energy-efficient unit in order to qualify for a tax credit. And it’s not a small tax credit. The tax credit is up to 30% of the cost of energy-efficient water heaters, air conditioners, furnaces, windows, and doors – up to a maximum of $1,500.

Let’s run those numbers. Our quotes have been between $5000 and $10000 for a new unit. Taking the average, let’s say that the new unit costs us $7500. The available credit on that unit would be the maximum, $1,500, since 30% of $7500 is $2250 (over the cap). Credits are dollar for dollar reductions in your taxes due – as opposed to deductions which merely reduce your taxable income. So while it feels like we’re saving $1500, let’s think about it in a different way. Assuming we’re in a 25% bracket, that $1500 credit offsets the equivalent of $6000 in taxable income. We’re now talking mortgage interest deduction type numbers – see why credits are a great thing?

As long as we buy a qualifying unit, we get the tax credit and we save some money on our electric bill. Don’t even get me started on the energy savings. You can guess how much we’re spending on window units in the summer and heating costs in the winter. It’s not pretty.

It’s not just air conditioning units and furnaces that may qualify. Windows, doors, and other appliances may be eligible for a federal tax credit. For a complete list of qualifying energy-efficient appliances and home improvements, check out the Energy Star web site.

Some states offer energy tax credits that can be applied to your state tax liability. Unfortunately for us, Pennsylvania isn’t one of those states with respect to appliances (to see a list of states which do offer incentives, click here).

I know what you’re thinking. We’re in a recession. Who has the money to front for a new system? Help is available. Pennsylvania, like many other states, offers low-cost loans for taxpayers to help out with the cost of installation and purchase of new appliances (in Pennsylvania, check out Keystone HELP). You can click here to see if your state offers a grant, loan, or rebate program.

And I’m not usually one to tip my hat to utility companies, but several offer programs that provide rebates, grants or loans towards the purchase of more energy-efficient units. Check with your provider for more details.

So, with a little push from Congress, I think it’s settled that we’ll be moving forward on a new unit fairly soon. The only trick now is doing it without conceding to my husband that he’s right…

Kelly Phillips Erb

Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

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