How to Receive a Tax Credit for an Oil Furnace

Newer, more energy-efficient oil furnace models are available to install in your home. These oil furnaces will reduce your energy use, lower your energy bills and allow you to receive a federal tax credit. Replacing your old furnace with an energy-efficient oil furnace will provide you with up to $1,500 in tax credit savings under U.S. tax laws. The government has an established tax credit program that encourages homeowners to invest in energy-saving "green" products. Tax credits are a substantially better benefit than tax deductions. A tax credit of $1,500 will actually lower your taxes by $1,500. Expenses eligible for a tax deduction of $1,500 will only result in a small portion of the $1,500 to be returned to the consumer.

Difficulty:

Moderate

Instructions

Things You'll Need

• Receipt for your new oil furnace
• Manufacturer's certification statement

1. Consider the benefits of an energy-efficient tax credit before purchasing an oil furnace. Energy-efficient oil furnace models may reduce your costs in the short and long term. In addition to the savings on energy costs an energy-efficient oil furnace will provide, the American Recovery and Reinvestment Act of 2009 offers energy efficient tax credits for 30 percent of the total cost of energy-efficient products up to a maximum level of $1,500. For example, products that cost $2,500 will be eligible for a $750 tax credit (30 percent of $2,500). Any unit exceeding $5,000 will be subject to the maximum eligible level tax credit of $1,500.

2. Look for oil furnaces that meet the energy requirements as outlined by the U.S. government. Note that not all oil furnace products with the Energy Star seal are eligible for this tax savings. The Resources section provides a link to the Energy Star website. To qualify, oil furnaces must have an annual fuel usage efficiency (AFUE) level of 90 percent or greater. This AFUE level is necessary to meet the government's high energy-efficiency requirements for this tax credit. Oil furnaces with a higher AFUE are the most energy-efficient models. The Gas Appliance Manufacturers Association (GAMA) provides information on hundreds of oil furnace models and their corresponding AFUE. The Resources section provides a link to the GAMA website for more product information.

3. Find, purchase and install your new energy-efficient oil furnace. Save receipts and keep good record of your oil furnace purchase for tax purposes.

4. Locate and keep the manufacturer's certification statement. The IRS recommends saving this certificate to make sure you have purchased the correct product to qualify for the credit. This certification should be included with your purchase. The Internal Revenue Service will not require the certificate to be filed with taxes, but the agency does recommend keeping this certificate with your records.

5. File for a tax rebate using IRS Tax Form 5695. The government will not have form 5695 available until the end of the 2009 tax year. You must claim your energy-efficient tax credit when filing your year-end taxes. The IRS link in the Resources section can provide answers to any additional tax questions.

Tips & Warnings

• This energy tax credit replaces previous tax credits allowable as set in the Energy Policy Act of 2005. The old policy limited the energy-efficient tax credit to a maximum of $500. The new tax credit limit was increased to $1,500.

• This report is meant to serve as a general guideline. Always consult with a tax professional to receive the most up-to-date tax information.

Resources

• Energy Star Information
• Tax Credit Information
• GAMA Informtion