Stimulus Money for New Furnaces
By Dave Stommers

Buying a more energy efficient furnace for your home can save you a lot of money on energy bills, but it takes time for the utility bill savings to add up to the initial outlay cost of the new furnace. Since energy efficient furnaces are good for everyone (less pollutants, less demand for fossil fuels) the federal government provides tax credits for the 2009 and 2010 tax years to incentivize their purchase. This article will discuss the extent of these credits, how to qualify for them, and how to collect them.

First let's clear up what a 'tax credit' is since it causes a lot of confusion. When you earn income the government uses a bunch of complicated formulae to figure out how much in taxes you owe them. After that number is calculated, a tax credit directly reduces that number by the amount of the credit. No matter what else you do, though, the maximum amount of tax credit you can get is the amount of taxes you must pay on your income. This doesn't mean you can't get money back from the government, it just means you can't get more back than you paid to them. Consider getting a $1,500 tax credit in each of these scenarios:

• If you made $50,000 in a year and have already paid $6,000 in taxes but the government says you must pay another $4,000, your tax credit would reduce the amount you owe by $1,500 to $2,500.
• If you made $50,000 in a year and have already paid $9,000 in taxes but the government says you must pay another $1,000, your tax credit of $1,500 means that the government now owes you $500 and will send you a check.
• If you made $25,000 in a year and haven't paid any taxes and the government says you owe them $1,000, your tax credit of $1,500 reduces the amount of money you owe the government to zero, but they will not give you the remaining $500.

Assuming you meet both of those requirements, the tax credit you are entitled to is 30% of the total cost of the furnace and fan including installation costs. If only one of the components meets the requirements you must get your installation expert to itemize your bill for installation of each component since you can only claim the credit on the installation of the qualifying component. Regardless, the credit is capped at $1,500.

This $1,500 cap comes under the general cap for energy efficiency tax credits for 2009 and 2010. So not only does this mean that you can only collect this credit once in the 2009 and 2010 tax years, it means it is a common credit with other energy efficiency purchases you make (e.g. windows, doors, insulation, water heaters).

In order to claim your tax credit, you will need to file IRS form 5695 along with your taxes. Additionally, make sure to save all of the relevant purchase and installation receipts as well as the signed Manufacturer's Certification Statement with your tax records. Often these statements are available online from the manufacturer's web site.

Find out more about Gas Heaters. Visit the Gas Heaters Guide.

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