Wood and Pellet Heater Investment Tax Credit (ITC)
In December 2022, the IRS issued its new Guidance and FAQs for the new 25(C) tax credit (effective for installations January 1, 2023 and December 31, 2032) and updated its guidance for the expiring 25(D) tax credit (effective for installations between January 1, 2021 and December 31, 2022) can be found at the button link below. HPBA highlighted the important Sections of the Guidance and FAQ.
HPBA has also updated its one-pager information page for retailers, which can be found at the button link below.
September 2022 UPDATE:
With the August 16, 2022, signing of the Inflation Reduction Act (IRA), high-efficiency biomass heating products once again qualify for a tax credit under Section 25(C) of the Internal Revenue Code (“IRC” or “tax code”). This new 30 percent tax credit – capped at $2,000 annually – is available for appliances installed between January 1, 2023, and December 31, 2032. The credit can be used on the purchase and installation costs of qualifying appliances. To be eligible for the tax credit, an appliance must have a thermal efficiency of at least 75 percent per the higher heating value (HHV) of the fuel. The IRA removes our products from Sec. 25(D) of the tax code where appliances were eligible for an uncapped 26 percent tax credit in 2021 and 2022.
Guidance and FAQs for both the upcoming 25(C) tax credit (effective for installations from January 1, 2023 and December 31, 2032) and the expiring 25(D) tax credit (effective for installations between January 1, 2021 and December 31, 2022) can be found further down the page. Feel free to contact Ryan Carroll with any questions that are not answered by our website.
Beginning in 2023, consumers buying highly efficient wood or pellet stoves or larger residential biomass heating systems may be eligible to claim a 30% tax credit – capped at $2,000 annually – based on the full cost (purchase and installation) of the unit. The credit runs through December 31, 2032. The 10-year term and 30 percent credit have been big components of HPBA’s advocacy push of the Biomass Thermal Utilization (BTU) Act over many years.
Please contact Ryan Carroll if you have any questions.
What is this new tax credit?
- Effective Dates: The new tax credit under Sec. 25(C) of the U.S. Internal Revenue Code (“IRC” or “tax code”) is effect on January 1, 2023 for qualifying purchases and installations completed on or after that date, through December 31, 2032.
- Credit Amount: Creates a new tax credit of 30 percent of the purchase and installation costs (with a $2,000 annual cap with no lifetime limit) for tax years 2023 through 2032.
- Qualifying Products: Qualifying products (any biomass-fueled heater) must have a thermal efficiency of at least 75 percent per the higher heating value (HHV) of the fuel
- The EPA certified wood heater database may be referenced (not all products on the EPA list qualify. Look for products with efficiencies of at least 75 percent)
- A manufacturer certification statement attesting that a product qualifies can also be relied upon
What happens to the 25(D) tax credit?
- Eliminates the tax credit for biomass stoves under IRC Sec. 25(D) starting in 2023
- Any product purchased in 2022 that qualifies for the new Sec. 25(C) credit, but isn't installed until 2023, can be claimed under the Sec. 25(C) credit on a 2023 tax return. Products must be claimed on the tax return year in which the product installation is complete.
See our new FAQs about this new tax credit for additional information.
HPBA will continue to update this page with additional information and new materials as we learn more. Please contact Ryan Carroll if you have any questions.
JANUARY 2022 UPDATE:
The IRS has updated its draft forms and instructions for the Residential Energy Credits on form 5695 for the 2021 tax season. Eligible taxpayers will be able to claim the new Section 25(D) tax credit for qualifying biomass stoves on line 5 of tax form 5695. Unlike on previous iterations of this tax form, biomass is specifically mentioned on the form and on its own line. The credit may be claimed in the year in which a qualifying product is installed. So, if a product is purchased in 2021 but not installed until sometime in 2022, the taxpayer would claim the credit (if the product is eligible and the person’s tax situation allows for it) on their 2022 tax return. HPBA has updated its consumer one-pager and website content to reflect these changes.
We understand that there may be a misunderstanding about how the new wood and pellet heater tax credit of 26% applies to federal tax returns. Some taxpayers may see an increase to their tax refund amount. Others with low tax liabilities might not be able to claim some (or any) of the tax credit if their federal tax obligation is low or already at zero. If customers ask you questions about how the tax credit applies to their tax return, ALWAYS refer them to a tax professional. Everyone’s tax situation is different and what is true for one person might not hold for another. For additional discussion on tax credits in general and how they work, see this article from eFile.
HPBA Members-Only Webinar (January 27, 2022): For HPBA members only, HPBA held a 45-minute webinar on Thursday, January 27 which was designed specifically towards retailers, especially owners and salespersons.
VIEW THE WEBINAR, SLIDES, AND CONTENT
Are you an HPBA member?
View a recording of our tax credit webinar we hosted on March 11, 2021 during which we reviewed the tax credit and answered questions.