Wood and Pellet Heater Investment Tax Credit (ITC)
DOWNLOAD NEW CONSUMER ONE-PAGER
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
Feel free to contact Ryan Carroll with any questions that are not answered by our website.
Beginning in 2021, consumers buying highly efficient wood or pellet stoves or larger residential biomass heating systems may be eligible to claim a 26% tax credit that is uncapped and based on the full cost (purchase and installation) of the unit. The credit will remain at 26% through this year and next, and then step down to 22 percent in 2023. This provision is part of the BTU Act, which has been actively supported by HPBA for the last several years and has been part of our Advocacy Day requests to Members of Congress.
NOTE: The language that made it into the final spending package eliminates the Sec. 25(C) credit for biomass stoves. The Sec. 25(C) tax credit may still be claimed on your 2020 tax return for qualifying purchases and installations completed before December 31, 2020.
Please contact Ryan Carroll if you have any questions.
What is this new tax credit?
- Effective Dates: The new tax credit under Sec. 25(D) of the U.S. Internal Revenue Code (“IRC” or “tax code”) came into effect on January 1, 2021 for qualifying purchases and installations completed on or after that date, through December 31, 2023
- Credit Amount: Creates a new tax credit of 26 percent of the purchase and installation costs (with no cap or lifetime limit) for tax years 2021 and 2022; moves down to 22 percent of purchase and installation costs in 2023 (under Sec. 25D of the U.S. tax code)
- 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(C) tax credit?
- Eliminates the tax credit for biomass stoves under IRC Sec. 25(C) starting in 2021 and enacts this provision in its place
- Any product purchased in 2020 that qualifies for the new Sec. 25(D) credit, but isn't installed until 2021, can be claimed under the Sec. 25(D) credit on a 2021 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.
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.