The IRS allows individuals to make deductions from their taxes for a number of reasons, including business expenses and environmentally friendly purchases. Other expenses and purchases allow tax credits to be claimed instead of deductions, reducing the amount of taxes that an individual has to pay. The purchase and installation of whole-house fans is a home improvement that often qualifies for a tax credit.
Credits vs. Deductions
Though tax credits and tax deductions are often used as interchangeable terms, there is actually a difference between the two. Tax deductions reduce the amount of income that can be taxed, though the taxpayer's full tax rate is charged on the reduced income amount. Tax credits reduce the amount of taxes owed, regardless of the income amount or the tax rate charged. The amount of tax savings that results from a deduction can vary depending on the taxpayer's tax rate, while a tax credit reduces taxes by the same amount regardless of tax rate.
Whole-house fans work by pulling hot air within a house upward to the attic and out through the attic's exhaust dormer vents. This movement of air pulls cooler air into the house through open windows, cooling the entire house more efficiently than an air conditioning system. As more cool air is pulled into the house, the air entering the attic becomes cooler and the attic itself becomes cooled as well. Whole-house fans differ from dedicated attic fans because whole-house fans create airflow throughout the house while attic fans only serve to ventilate the attic space.
Whole-house fans use a significantly lower amount of energy to operate than air conditioners or central heat and air units. Because of this and the fact that they don't require chemical coolants to operate, the IRS often allows taxpayers to claim the installation of a new whole house fan as part of an energy tax credit. Whole house fan credits are typically capped at $50 per fan, with the exact amount of the credit being a percentage of the cost of purchasing and installing the fan.
Claiming the Credit
To claim an energy credit on the basis of a whole-house-fan installation the fan must meet certain qualifications. The fan must be installed within the period specified by the tax credit, typically the year that it is being claimed or a range of years within which the credit is valid. An energy requirement is also set for the fan, meaning that operating the fan cannot consume more energy than the specified amount. The amount of energy used by a whole house fan is often specified as a percentage of the energy used by the existing air conditioning unit.
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