HVAC Systems

The American Recovery and Reinvestment Act’s energy-efficiency tax credits include HVAC systems. Installers should recommend a system based on several factors, including the orientation and shading of the house, the window coverings, and the homeowner’s lifestyle.

Remodelers and homeowners should also consider the effect of the HVAC installation on the home’s air quality and comfort, especially when planning an addition or a major remodel.

Efficiency Levels

The efficiency level for qualifying HVAC equipment is high — in most cases higher than current Energy Star standards — and comes with a premium price tag. HVAC contractor Jim Firszt, HVAC consultant with Mid-American Heating & Air Conditioning, in Spring Grove, Ill., says that customers who have just begun to understand Energy Star ratings may be confused about the tax credit standards. Some experts say that the higher cost of stricter-than-Energy-Star equipment is limiting.

Manufacturers and contractors say that due to the coverage and promotion of the larger stimulus package, homeowners are generally aware of tax incentives for energy-related improvements. Before the tax credits, most homeowners who chose high-efficiency equipment were owners of large custom houses. Now, for many people who are ready to do projects, it’s getting them to make the jump to the next level. The $1,500 credit takes a big bite out of the $6,000 to $7,000 cost of an average system.

Bob Swilik, senior manager of residential and light commercial systems product strategy for Carrier Corp., in Farmington, Conn., says that, on average, the high-efficiency equipment might cost 30% to 40% more than less-efficient equipment but the efficiency trade-off is worth the premium. He says that upgrading from a 13 SEER to a 16 SEER air conditioner provides about 25% better efficiency. “But, when you’re replacing a system, you are typically replacing an existing 8 SEER or 10 SEER. Then you’re looking at a 40% to 50% saving on utility bills,” Swilik says.

In addition to the tax credits, homeowners can also take advantage of HVAC manufacturer rebates and contractor discounts and incentives.

ADVANCED MAIN AIR CIRCULATING FANS: The IRS has yet to clarify an issue with this item, which is listed as qualified for the tax credit. An advanced main air circulating fan, also known as an ECM fan, is a variable-speed blower fan used in gas, propane, or oil furnaces.

For 2009, the advanced air circulating fan is still listed as a separate item that qualifies for the 30% credit under the $1,500 cap. However, says Charlie McCrudden, vice president of government relations for the Air Conditioning Contractors of America (ACCA), some homeowners could claim that an 80% AFUE furnace equipped with the ECM fan qualifies for a credit of the full 30% of the cost of the furnace up to the $1,500 cap.

In response to a question about this on its website, Energy Star says: “If the fan is qualified, but the furnace is not, you will most likely NOT be able to take 30% off the cost of the entire furnace. This FAQ will be updated as soon as the IRS issues guidance on this issue.”

ACCA has also asked the IRS for clarification on whether homeowners can claim the full invoice for an HVAC installation, even if some of the equipment does not qualify. If a contractor installs a qualified furnace but unqualified A/C, does the IRS need an itemized invoice? How does the taxpayer treat the situation with multiple installations, some qualified, some not qualified?

This could happen for certain geographic locations. For example, in Michigan where it is cold, it makes sense to install a 95% AFUE furnace, but an owner might not choose to pair it with a 16 SEER A/C. Most HVAC contractors provide a single invoice for the full installation and may want to avoid itemization. However, another option is to create two separate invoices. The tax credit applies to both the materials and installation of HVAC systems.

Many manufacturer websites have lists of qualifying equipment. In addition, the Air-Conditioning, Heating, and Refrigeration Institute has a directory (www.ahri.org) where contractors can enter specifications and confirm that equipment meets the standard.

EFFICIENCY LEVELS: HVAC consultant Jim Firszt points out that air conditioning equipment must meet both the SEER and EER to qualify. “If it meets 13 EER, it will automatically meet 16 SEER. But not the other way around,” he says.

FURNACE CHOICE: According to Firszt, the 95% efficiency level for a gas furnace is easiest to reach, but it’s not always the best choice, based on climate. “In the northern states, [clients] get their money back sooner, but for southern states, A/C or heat pumps are better.”

SYSTEM COMBINATIONS: Contractors need to install the right combination of HVAC equipment to meet the efficiency levels. For example, matching the A/C condenser outside with the right furnace or air handler inside.

SPACE CONSIDERATIONS: John Hurst, vice president of product management with Richardson, Texas–based Lennox, says that many product installations have space constraints, particularly for the furnace and air handler. Local codes governing chimney size for venting and make-up air will also affect installation parameters. Frederick Air sales manager John Poyle offers an example: “If my house has a 3-ton air conditioner, and I want a 20 SEER unit, a manufacturer will say, this unit comes up to 20 SEER. But I may need a 5-ton coil to get that 20 SEER efficiency from the unit. But that coil is massive and won’t fit in my basement because of the low ceiling.”

To choose the best solution for the customer, make sure that the HVAC contractor reviews existing conditions, including the orientation of the house, shading, and existing insulation, as well as lifestyle considerations such as how the customer uses the system and what changes they plan for the future.

Water Heaters

In many homes frequent and liberal hot water use is essential, but reducing energy consumption is becoming a priority. Homeowners who want to upgrade equipment when those paths cross will have several tax credit–friendly options available.

Tankless units are likely lead water heater retrofits, simply by virtue of availability. Few gas storage tank or condensing water heaters on the market currently qualify for tax credits. “Most tankless models qualify, but few manufacturers have a conventional-style product that qualifies,” says David Chisolm, brand manager for AO Smith. The company is one that does offer a residential storage-type water heater that meets the legislation’s thermal efficiency requirements.

Natural gas, propane, or oil residential water heaters with an energy factor of at least 0.82 qualify (higher is better). Some units may alternatively be measured by thermal efficiency, which must be at least 90% to qualify. These requirements apply to storage-style or tankless heaters. Electric heat pump water heaters with an energy factor of 2 or higher are also eligible. Homeowners can claim the standard tax credit and recoup 30% of the cost, including labor, up to $1,500.Doing

While many storage water heaters meet Energy Star’s 0.67 energy factor requirement, units must meet a higher energy factor of 0.82 to be tax credit–eligible. Currently, no Energy Star–rated storage water heaters meet that specification.

Some storage models do meet a different tax credit requirement of having 90% thermal efficiency. Energy Star does not give consideration to thermal efficiency, which is traditionally used to rate commercial units. Manufacturers stress that commercial water heaters should not be installed residentially, for safety reasons. According to the Consortium on Energy Efficiency, commercial units are not required to have flammable vapor ignition resistance (FVIR) features, which provide safety in residential settings.

That said, there do exist storage water heaters that are measured by thermal efficiency and that meet all necessary residential codes. Two models are in AO Smith’s Vertex line. “The technical definition of a ‘residential’ unit is a water heater operating at 75,000 BTU and below,” explains brand manager David Chisolm. “Our models in this category are over 75,000 BTUs, which is why they are rated with thermal efficiency instead of energy factor. However, they were designed specifically for residential applications, and meet all codes to be installed residentially.”

Chisolm adds that while the company’s Vertex products do not feature FVIR, neither do many tankless water heaters. Tankless units and others like the Vertex models use advanced heat exchangers that place them in different categories from traditional storage tank water heaters, and thus have different safety requirements.

Venting is particularly important with installation, for functionality and cost reasons. Jack Banker, tankless product manager for Rheem, says that the stainless steel venting used with most tankless units often increases the cost. Homeowners will notice this increase when they compare it to tank models they see in stores, which cost less and use less expensive PVC for venting.

(Exerpted from Remodeling Magazine)