About the 2023 Wood and Pellet Home Heater Tax Credit

The new tax credit under Sec. 25(C) of the U.S. Internal Revenue Code (“IRC” or “tax code”) is in effect on January 1, 2023 for qualifying purchases and installations completed on or after that date, through December 31, 2032.

It creates a new tax credit of 30% of the purchase and installation costs (with a $2,000 annual cap with no lifetime limit) for tax years 2023 through 2032.

To qualify, the stove or insert must burn wood or pellets (biomass), hot air or water, and be at least 75% efficient per the higher heating value (HHV) of the fuel.

Below, please find the full list of qualifying products that are carried at Higgins Energy Alternatives:

You can also reference the EPA-certified heaters list to find qualifying products (look at the column for “Overall Efficiency” for those products at 75% HHV or higher).

From HPBA: 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, then the balance cannot be 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 on IRS Form 5695 on line 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.”

From HPBA: 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.

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.).

NOTE: 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.

From HPBA: Both the purchase cost of the product and 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 on-site preparation, assembly, or original installation of the qualified heater. This also includes any venting/piping/wiring to connect the heater to the home.

The new 30% tax credit eliminates the 26% tax credit for biomass stoves under IRC Sec. 25(D) starting January 1, 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.