Do You Qualify for the New Wood & Pellet Heater Tax Credit?

A modern wood stove in a home

Updating your home with a new wood or pellet heater is a great way to add new charm to your property and fight back against the freezing winter. Thanks to new legislation signed at the end of 2020, you can also get a significant credit back on your tax return for the upgrade, too!

Read on to learn more about the wood and pellet heater tax credit and how you can qualify and apply to get this massive credit back on your purchase/installation costs!

What Is the Wood & Pellet Heater Tax Credit?

In December of 2020, as part of a response to the COVID-19 pandemic, a relief package was signed into law that among other items, included a new tax credit. This credit applies to both wood and pellet heaters like stoves you may have installed in your home! At Doctor Flue, we already know the many benefits of wood and pellet stoves for your home, but this added incentive makes them even more economical to install!

The Section 25(D) renewable energy investment tax credit means stoves in your home using pellets or wood for fuel with an HHV (higher heating value) of 75% efficient or higher will qualify! This information will be available for you to see when looking at models to purchase, so you can ensure you choose a qualifying heater.

The tax benefits specifically outline the plan for the next few years:

Starting on January 1st, 2021, high-efficiency wood and pellet stoves or residential biomass heating systems will qualify you for a credit of 26% of the purchase and installation costs. This benefit is uncapped – meaning you will always receive the full 26% no matter the cost of your purchase and installation as long as it’s a qualifying high-efficiency appliance.

The credit remains through 2022, but in 2023 the tax credit will be reduced to 22%. While that’s a small change, it means it’s a good idea to make your purchase and plan your installation for your new wood or pellet stove heater now to get the most out of the credit that you can!

Doctor Flue is happy to help you find the perfect stove for your home and plan an installation that works on your schedule!

How Do I Claim This Tax Credit?

To claim the credit, you’ll need to fill out the appropriate details on your 2021 income tax returns. This means you won’t be able to make the claim until next year, but qualifying stoves or heaters purchased this year will be applicable.

Depending on how you fill out your taxes, the specific thing to look out for will be these items:

Filing by Mail – If you file your taxes on paper and mail them in, look for the section under the IRS Form 5695 under “Residential Energy Efficient Property Credit.”

Filing Electronically – If you file with the assistance of software, you can find the relevant credit in the “Credits” section of the filing form, specifically under the sections for Home Ownership & Residential Energy Credit

What Do I Need to Be Prepared?

If you plan to take advantage of this tax credit on your next tax return, make sure to save the details of your purchase and installation. The follow items will make sure you’re covered:

  • Purchase Receipt
  • Paperwork Detailing Date of Installation
  • Manufacturer’s Certificate Indicating Qualification for the Credit and That the Stove is Over 75 Percent Efficient HHV

One addition item to note is that the installation date is the key item when it comes to applying for the credit. If you purchased a stove that qualifies in 2020, but didn’t have it installed until 2021, you will be able to apply for the credit as long as your paperwork proves it was installed after the credit became law on January 1st, 2021.

What About the Existing Sec. 25(C) Credit for Biomass Stoves?

The update to this tax credit allowing the inclusion of wood and pellet heaters also means the previous tax credit has been eliminated. You’ll still be able to file a request for the previous tax credit on 2020’s tax forms, but moving forward, the new Section 25(D) will replace it.

If you had a stove installed in 2020 and didn’t apply for the existing tax credit, you can claim the credit by amending your return to claim the Section 25(C) credit. The new Section 25(D) credit will not apply retroactively, and is only applicable for new qualifying stoves purchased and installed starting on January 1st, 2021.

Schedule an Inspection of Your Chimney Today!

Our  CSIA Certified Chimney Sweeps can help you find the right new stove for your home and install it. Our technicians follow up-to-date safety standards and compliances to ensure your new appliance is effective and safe! Contact us today! We’ll get you set up right away so you can have peace of mind.

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