2023-2032 Wood and Pellet Heater ITC FAQs
QUALIFYING PRODUCTS: What is the Wood and Pellet Heater Investment Tax Credit? What products qualify?
The current Wood and Pellet Investment Tax Credit was authorized by the Inflation Reduction Act (IRA) of 2022. It creates a credit under Sec. 25(C) of the Internal Revenue Code. The credit covers 30 percent of purchase and installation costs – capped at $2,000 in a given year – in 2022 through 2032.
Qualifying products are fueled by wood or pellets (biomass), heat air or water, and have a thermal efficiency of at least 75 percent per the higher heating value (HHV) of the fuel.
Talk to your nearest specialty hearth dealer about which products qualify.
You can also reference the EPA-certified heaters list to find qualifying products (look at the column for "Overall Efficiency").
QUALIFYING PRODUCTS: Can a consumer claim the credit for a used stove that meets the tax credit requirements?
No, the tax credit cannot be claimed for any used appliance. It generally treats an expenditure as made when the original installation of the qualifying property is completed. So, it would not apply to a used appliance.
QUALIFYING PRODUCTS: I've noticed that many woodstoves are not listed on the EPA database website. Why is this? Is there another website we can utilize?
Any wood or pellet heater that is regulated by the U.S. EPA must be certified and is on the EPA certified appliance list. It is possible that if you are looking for a certain product but aren’t finding it on the list that it is listed under a different name than what you are using in your search. It is also possible that a product is newly EPA-certified and the EPA has not yet updated the list. Check with the appliance manufacturer if you are having trouble locating it on the list.
PAPERWORK: What should a manufacturer's certification statement contain?
A manufacturer's certification statement should contain the following information:
- The name and address of the manufacturer.
- Identification of the class of qualified energy property (Biomass-Burning Stove) in which the property is included.
- The make, model number and any other appropriate identifiers of the stove.
- A statement that the product is an eligible qualified energy property.
- A manufacturer's certification statement must contain a declaration, signed by a person currently authorized to bind the manufacturer in these matters, in the following form: "Under penalties of perjury, I declare that I have examined this certification statement, and to the best of my knowledge and belief, the facts are true, correct, and complete."
PAPERWORK: Do I need a manufacturer's certification statement to claim this credit?
No, you are not required to have a manufacturer's certification statement to claim the credit. But, it is good to have if it is available. In the absence of a manufacturer's certification statement, we recommend you print out or save the appliance manual section that mentions the efficiency rating, or take a screenshot of its listing on EPA's website.
PAPERWORK: How can I claim this tax credit on my tax return?
Taxpayers may claim the credit on their federal income tax return form in the year in which product installation is complete. The credit is a reduction of total income tax owed. This is a non-refundable tax credit available for individuals who pay federal taxes and who make energy-conscious purchases to improve the energy efficiency of their home.
If your tax owed is reduced to zero by this credit, but you still have money left to claim, it the balance cannotbe carried over to the next tax year to further reduce your tax burden in the future.
You should always consult a tax professional as individual situations may vary.
Paper Filing:The credit can be claimed onIRS Form 5695online 5, "Qualified biomass fuel property costs."
Electronic Filing:If you are using tax filing software, the credit generally will be found under the "Credits" section of the Federal portion (Home and Vehicles– Residential Energy Credit or Credit Carryforward). On H & R Block, the credit is not under "Residential Energy Credits;" it can be claimed under the "Alternative Energy Credit." This is on the page after "Residential Energy Credits" after you indicate "No" when asked if you've made a purchase that qualifies for the "Residential Energy Credit."
PAPERWORK: What paperwork should a consumer retain for their personal tax records?
You should retain (1) the sales receipt and any installation paperwork and (2) the manufacturer’s certification statement (if not available, documentation that the heater is at least 75 percent HHV efficient).
The sales receipt and installation documentation demonstrates that you purchased and completed installation of the qualifying heater during the effective period of the credit. The retailer from whom you purchased the qualifying heater should also provide you with a manufacturer's certification statement indicating that the product qualifies for the tax credit. You aren't required to have a certification statement in order to claim the tax credit. A screenshot or printout of the product manual page listing the efficiency as at least 75 percent efficient per the HHV is sufficient.
The certification statement should contain the name and address of the manufacturer; the class of qualified energy property; the make, model number and any other appropriate identifiers of the heater; a statement that the product is eligible; and a declaration, signed by a person currently authorized to bind the manufacturer in these matters (e.g., I attest that I have examined this certification statement, and to the best of my knowledge and belief, the facts are true, correct, and complete.).
Manufacturers should make this certification document available to consumers on their website, in the product packaging, or in some other easily accessible manner.
PAPERWORK: Will the cost of the appliance and installation need to be itemized in order to fill out the form?
A taxpayer does not need to include a copy of their purchase receipt in order to claim the tax credit. Thus, it is not “necessary” to itemize the receipt, but it is a good idea to do so in case the customer undergoes an audit and needs to show which part of the cost was for the appliance and which parts of the cost were for labor or other materials needed to complete installation.
COVERED COSTS: Are installation costs included in this tax credit?
Yes. Installation costs are included. Sales tax can also be included.Always consult a tax professional for issue-specific guidance.
Installation costs cover expenditures for labor costs for onsite preparation, assembly, or original installation of the qualified heater. This also includes any venting/piping/wiring to connect the heater to the home.
To ensure that your stove burns as efficiently, cleanly, and safely as possible, be sure to have it installed by a professional credentialed by the National Fireplace Institute.
COVERED COSTS: Are biomass stoves installed in new or vacation homes covered by this tax credit?
Yes. While previous biomass tax credits allowed only installations in primary residences to be claimed, the IRA permits biomass heaters installed in the US at a residence of the taxpayer (not necessarily the taxpayer’s principal residence) to receive the credit.
COVERED COSTS: Would this credit cover any cost on demo/removal of old unit to upgrade to the new unit?
It depends. Individual circ*mstances vary. If it's part of the installation process, preparation and installation, it might. But they need to make sure they're following the related IRS guidance. Consult a tax professional.
COVERED COSTS: Can you include the optional blower on a wood stove as part of the total cost?
Most likely not if it is optional. Check with a tax professional as individual situations may vary.
COVERED COSTS: Will additional work required to bring the ventilating system up to code, for example: installing a wood burning insert in a masonry fireplace in which the flue has glazed creosote, will this work be coverable by the tax credit?
It may depend on the individual’s situation, so consult a tax professional. It might be considered necessary work to complete a safe installation. But, always consult a tax professional in the absence of definitive IRS guidance.
COVERED COSTS: We have a customer installing two stoves that qualify for the tax credit. They want to install an all-masonry chimney with a flex liner instead of using hard pipe. Can they include the cost of the masonry chimney in the total amount?
Most likely, but always check with a tax professional. It might be considered a component necessary to complete installation of the qualifying product. The credit covers the installation costs, including venting. Could masonry chimney be considered venting? Yes. Always check with a tax professional on situations like this as the answer can vary in each case.
COVERED COSTS: Would any repairs to the chimney crown associated with making sure the chimney liner's top plate is properly sealed qualify for the credit?
It may depend on the individual’s situation, so consult a tax professional. It might be considered necessary work to complete a safe installation. But always consult a tax professional in the absence of definitive IRS guidance.
CALCULATING THE CREDIT: If I buy a qualifying product under a state/utility/other rebate/changeout program, do I have to reduce the amount of the federal tax credit?
It depends on each taxpayer's situation.Always consult a tax professional for issue-specific guidance.
Below is what the IRS specifically says (from their 2013 FAQson page 5).
Public Utility. Under § 136, if a public utility provides (directly or indirectly) a subsidy to a customer for the purchase or installation of any energy conservation measure, the customer does not include in his or her gross income the value of the subsidy. As a result, the taxpayer may not claim a credit for the amount of the subsidy that is excluded from the taxpayer’s gross income. This rule applies whether a third-party contractor receives a subsidy on behalf of the taxpayer or the taxpayer receives
the subsidy directly. Not all payments from a public utility fall within the provisions of § 136.
Rebates. Rebates generally represent a reduction in the purchase price or cost of property, and the taxpayer must exclude the amount of the rebate from the amount of the qualified expenditure on which the taxpayer calculates the tax credit. In general, in order for a receipt of funds to be considered a nontaxable rebate, the rebate must be based on or related to the cost of the property; the rebate must be received from someone having a reasonable nexus to the sale of the property, for example, the manufacturer, distributor, or seller/installer; and the rebate must not represent payment or compensation for services.
State Energy-Efficiency Incentives. A state may provide energy-efficiency incentives to encourage taxpayers to purchase qualifying property under § 25C or § 25D. Section 136 does not address these incentives. Generally, a taxpayer is not required to reduce the purchase price or cost of property acquired with a governmental energy-efficiency incentive that is not a rebate. Many states label their energy-efficiency incentives as rebates, but these incentives may not in fact constitute rebates or purchase-price adjustments for federal income tax purposes.
CALCULATING THE CREDIT: Can I claim both this federal tax credit and a state tax credit?
Typically yes, but always consult a tax professional. Also, a taxpayer is not required to reduce the purchase price or cost of property acquired with a governmental energy/efficiency incentive that is not a rebate. Many states label their energy-efficiency incentives as rebates, but these incentives may not in fact constitute as rebates or purchase-price adjustments for federal income tax purposes.
Always consult a tax professional for issue-specific guidance.
CALCULATING THE CREDIT: In the case of a newly constructed home, how does the taxpayer determine the cost of the qualifying property under Sec. 25(C)?
The taxpayer may request that the homebuilder make a reasonable allocation or the taxpayer may use any other reasonable method to determine the cost of the property that is eligible for the Sec. 25(C) credit.Installation costs cover expenditures for labor costs for onsite preparation, assembly, or original installation of the qualified heater. This also includes any venting/piping/wiring to connect the heater to the home.
Always consult a tax professional for issue-specific guidance.
CALCULATING THE CREDIT: If a homebuilder constructed a home and installed a qualifying heater in in Year 1, but the home wasn't sold and occupied until Year 2, may a taxpayer who buys that home and use it as a residence in Year 2 claim the tax credit?
Yes. As long as the taxpayer begins to use the house as a residence before the tax credit expires, the taxpayer may claim the Sec. 25(D) credit in Year 2.
Sec. 25(D(e)(8) treats an expenditure in connection with the construction or reconstruction of a structure as made when the taxpayer begins to originally use the constructed or reconstructed structure as a residence.
If the same scenario occurs with a model home, and the qualifying heater was used during the time it was marketed for sale, the taxpayer can still claim the Sec. 25(D) credit in Year 2. The expenditure is treated as made when the use of the structure as a residence begins.
Always consult a tax professional for issue-specific guidance.
CALCULATING THE CREDIT: A taxpayer (Taxpayer A) purchases and moves into a new home in 2021 that has a qualifying heater. They claim the tax credit in 2021. In 2023, Taxpayer A sells the home to Taxpayer B. Is Taxpayer B eligible for a credit?
No. Sec. 25(D)(e)(8) generally treats an expenditure as made when the original installation of the qualifying property is completed.
Only the taxpayer who begins the original use of the constructed or reconstructed structure as a residence or the taxpayer using the home as a residence when the property was originally installed is eligible for the tax credit.
Always consult a tax professional for issue-specific guidance.
CALCULATING THE CREDIT: If you buy a woodstove as a gift for someone who lives in a different house, who gets to claim the tax credit? The stove gifter or the new stove owner?
A person in this situation needs to talk to a tax professional. It depends on their own individual situation. It is possible that neither can claim the credit, but it is certain that the credit should not be claimable by both parties. The circ*mstances really depend on the individual situation. A tax professional must be counseled.
CALCULATING THE CREDIT: How many years can you carryover the extra credit on your tax return?
There is no refundability or carryover of a 25(C) tax credit. Any portion of the credit left unused/unclaimed in a given year may not be carried over to a subsequent tax year.
CALCULATING THE CREDIT: In what order should other tax credits being claimed be calculated? For example, should I calculate the biomass heater tax credit first and then calculate the solar credit for my new solar panels?
The answer to this depends on your individual circ*mstances. Consult a tax professional. Since there is no lifetime limit on the 25(D) tax credit, the order in which the credits are claimed may not be as important as in years past.
