The IRS released guidance for the changes made to the homeowners tax credits under the American Recovery and Reinvestment Act of 2009 (the stimulus bill).

The guidance document clears up two important questions: how does a taxpayer can claim the credit for a furnace that does not qualify for the tax credit but does contain a qualifying advanced main air circulating fan; and how to treat qualified installation made before the date of the stimulus bill's enactment.

The first one was the top frequently asked question from contractors and homeowners because some were arguing that any furnace with a qualified main circulating fan (even one with an AFUE below 95%) qualified for full tax credit of 30% of the installed costs up to $1500.

In cases where only the furnace fan qualifies, the taxpayer will have to use a little math to determine their credit. According to the IRS, a taxpayer can take into account “the amount paid or incurred to purchase and install the fan when determining the credit” based on the percentage of the costs of the furnace that is allocable to the fan. The manufacturers may inform taxpayers of this percentage or the amount on their certification so they can calculate their total tax credit.

So if the fan costs $100 to install, then the tax payer may claim $30 (30% of the installed costs up to $1500.)

The second question dealt with the transition between the tax credit program that had lower qualifying standards and the higher value tax credit with more stringent qualifying standards. 

According to the guidance, taxpayers who made qualifying installations under the old tax credit program between Jan. 1, 2009 and February 16, 2009, get to claim the full $1500 for equipment that qualified under the old plan. This is most significant for anyone who installed a central air conditioner during that timeframe, because the minimum standard that applied back then was 15 SEER/12.5 EER. These lucky homeowners thought they were only getting a maximum $300 credit but it turns out they can claim 30% of the installed costs up to $1500.

To read the IRS guidance yourself, click here. (For further explanation of the credits included in the ARRA legislation, members can click here.)