Certain products that promote energy efficiency are eligible for tax credits from the federal government. You can claim the tax credit when filing your income tax return. A tax credit is a dollar-for-dollar amount that you receive from the government. This is different from a tax deduction, which reduces your tax liability by the amount to be deducted. The February 2009 stimulus bill provided increased tax credits for energy-efficient products, including furnaces, windows, heaters, solar panels and wind energy systems.
Shop around and confirm eligibility. If you have not purchased your furnace yet, make sure that what you buy is Energy Star labeled and meets the specific energy-efficiency criteria to qualify for the tax credit (see Resources). If you have already purchased your furnace and it does not meet the requirements, you will not qualify for a tax credit.
Keep good records. You will need your purchase receipt and a manufacturer's certification statement to claim a tax credit. Make sure to get the certification statement when you buy your furnace.
Familiarize yourself with the rules for claiming a tax credit for a furnace purchase. For tax years 2009 and 2010, you can claim a tax credit of up to 30 percent of the purchase price of your eligible energy-efficient product up to a maximum of $1,500. If your furnace was installed in 2008, you are not eligible for a tax credit; however, furnaces installed in 2009 are once again eligible if they meet the efficiency criteria. Furnaces installed in 2006 and 2007 are eligible, and if you did not claim a tax credit, you can file an amendment to your tax return for the applicable year. See the second link in Resources for all energy-efficiency tax credits available.
When filing your taxes, you will need IRS form 5695. You can easily find this form online. Make sure you use the most up-to-date version. See the link in Resources for the current version. Fill it out properly by following the instructions.
Use tax-filing software at tax time. The best way to claim your tax credit is to use tax-filing software. You just need to answer the appropriate questions, and the software will automatically prepare the appropriate IRS forms. Also, bear in mind that tax-filing software is updated periodically to be in line with up-to-date government regulations.