Can You Write Off a New Furnace on Your Taxes?

Writing off a new furnace on your taxes depends entirely on when it was installed and how the property is used. The 30% federal Energy Efficient Home Improvement Credit that covered qualifying high-efficiency furnaces ended for equipment placed in service after December 31, 2025, under the One Big Beautiful Bill Act.¹ If your furnace went in during 2025, you may still claim that credit on your 2025 return. If it went in during 2026 or later, no direct federal write-off exists for a personal residence, but you can still recover part of the cost if the home is a rental, if you run a qualifying home office, or eventually when you sell.

The Energy Credit Only Helps 2025 Installations

From 2023 through 2025, Section 25C of the tax code let homeowners claim a credit equal to 30% of the cost of a qualifying furnace, including labor, capped at $600 per furnace and folded into a $1,200 annual limit for energy-efficient improvements.² The One Big Beautiful Bill Act accelerated the credit’s expiration to December 31, 2025.³

What matters is the placed-in-service date, not the purchase date. A furnace paid for in December 2025 but not installed and operational until January 2026 falls outside the credit.⁴

Claiming the Credit on a 2025 Return

You report the credit on Part II of Form 5695, Residential Energy Credits.⁵ To qualify, the furnace had to meet or exceed the Consortium for Energy Efficiency’s highest efficiency tier (excluding any advanced tier) at the start of the year it was installed. For natural gas furnaces, that threshold has generally meant an Annual Fuel Utilization Efficiency rating of 97% or higher.²

A few details catch people out:

The credit is nonrefundable. It can zero out your tax, but any unused portion is lost; nothing carries forward.²
The furnace had to be in your main home. Vacation homes, rental properties, and new construction were excluded.⁵
If you claim the credit, you must reduce your home’s cost basis by the credit amount, which affects your gain calculation when you sell.⁵

Hold on to the manufacturer’s certification statement confirming the efficiency rating and the original invoice showing equipment and labor costs separately.

In a Personal Residence, a Furnace Adds to Basis

A new furnace is a capital improvement, not a repair. Replacing a thermostat or fixing a cracked heat exchanger is a repair; swapping in a whole new system extends the property’s useful life and counts as an improvement.

Capital improvements to a personal residence are never deductible in the year you pay for them. The cost gets added to your home’s adjusted basis, which is the figure used to calculate taxable profit at sale. Buy a home for $300,000, spend $10,000 on a furnace, and your basis rises to $310,000. Sell for $450,000 and your gain is $140,000 instead of $150,000.

Be honest with yourself about whether this will ever matter. The federal home-sale exclusion shields up to $250,000 in gain, or $500,000 for a married couple filing jointly, on a primary residence you’ve lived in for at least two of the last five years.⁶ If your gain stays under those thresholds, the basis bump from a furnace saves you nothing at sale. Still worth tracking, because long holding periods, major renovations, and strong appreciation can push gains past the exclusion.

A Home Office Can Capture Part of the Cost

If you’re self-employed and use part of your home exclusively and regularly as your principal place of business, part of the furnace cost becomes deductible. A furnace serves the whole house, so it’s an indirect expense allocated by the business-use percentage, usually office square footage divided by total square footage.⁷

This only works under the actual-expense method. You apply the business-use percentage to the furnace cost and depreciate your share over time rather than deducting it in one year. The simplified method, which gives you $5 per square foot up to 300 square feet, does not allow a separate depreciation deduction for improvements like a furnace.⁸ If you normally use the simplified method and you’re installing a furnace, run the numbers both ways for that year.

One ceiling to remember: home office deductions cannot exceed the gross income from the business that uses the office, and anything in excess carries forward.⁷

Rental Property Owners Depreciate the Whole Cost

Rental property owners get the cleanest tax treatment. The entire cost of the furnace, including installation labor, is recovered through annual depreciation against rental income.

The IRS classifies a furnace as a structural component of residential rental property, which places it in the 27.5-year recovery period under the Modified Accelerated Cost Recovery System, using the straight-line method with a mid-month convention.⁹ A $10,000 furnace produces roughly $364 in annual depreciation reported on Schedule E of Form 1040. Modest each year, but reliable across the full recovery period.

Two shortcuts that work for other business assets don’t apply:

Section 179 expensing excludes structural components of buildings. The special election allowing Section 179 for HVAC property is limited to nonresidential buildings such as offices and retail, not residential rentals.¹⁰
Bonus depreciation, restored to 100% for qualified property acquired and placed in service after January 19, 2025, generally requires a recovery period of 20 years or less. A furnace in a residential rental sits at 27.5 years and doesn’t qualify.⁹

Small Component Repairs May Be Fully Deductible

If the work is limited to replacing a furnace component rather than the full unit, the de minimis safe harbor may let you deduct the cost immediately. The election covers items costing $2,500 or less per invoice, or $5,000 if you have audited financial statements.¹¹ A blower motor or igniter replacement under that threshold can be expensed in the year of the work. A full furnace replacement will almost always exceed $2,500 and will not qualify.

Don’t Leave the Old Furnace on Your Books

When you replace an old furnace in a rental, the unrecovered depreciation on the original unit is usually just sitting inside the building’s depreciation schedule, dribbling out over the remaining years. A partial disposition election lets you recognize the remaining basis of the old furnace as a loss in the year you replace it.¹²

No special form is required. You make the election by reporting the loss on a timely filed return (including extensions) for the year of the disposition, with the loss going on Form 4797, Sales of Business Property.¹³ You’ll need the adjusted basis of the old furnace, which means the original cost minus depreciation already taken. If the original cost isn’t in your records, the IRS allows reasonable estimation, such as discounting the current replacement cost back to the original placed-in-service year using a producer price index.

Rebates Target Heat Pumps, Not Furnaces

The Inflation Reduction Act also funded state-administered point-of-sale rebate programs, the largest being the Home Electrification and Appliance Rebates program for income-eligible households. These rebates are designed to push electrification, so they cover heat pumps, heat pump water heaters, and electric appliances rather than gas, oil, or propane furnaces. If you’re open to switching from a traditional furnace to a heat pump, the rebate can reach $8,000 for lower-income households, with availability and funding varying by state.¹⁴ Some states have already fully committed their allocations, so check with your state energy office before planning around it.

Records to Keep

Documentation is what protects any of these tax positions in an audit. Keep the original invoice showing equipment and labor charges separately. If you’re claiming the 25C credit on a 2025 return, hold the manufacturer’s certification statement. For a rental, maintain a depreciation schedule that tracks the furnace as its own asset with placed-in-service date, cost, and accumulated depreciation; if you take the partial disposition election, keep the calculations supporting the old unit’s original cost and remaining basis. Hold these records for at least three years after the return reporting the final depreciation deduction or the sale of the property.

1
Internal Revenue Service. One Big Beautiful Bill Provisions
2
Internal Revenue Service. Energy Efficient Home Improvement Credit
3
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under the One Big Beautiful Bill
4
Office of the Law Revision Counsel. 26 U.S. Code 25C – Energy Efficient Home Improvement Credit
5
Internal Revenue Service. Instructions for Form 5695 (2025)
6
Internal Revenue Service. Topic No. 701, Sale of Your Home
7
Office of the Law Revision Counsel. 26 U.S. Code 280A – Disallowance of Certain Expenses in Connection With Business Use of Home
8
Internal Revenue Service. Simplified Option for Home Office Deduction
9
Internal Revenue Service. Publication 527 (2025), Residential Rental Property
10
Internal Revenue Service. Publication 946 (2025), How to Depreciate Property
11
Internal Revenue Service. Tangible Property Regulations – Frequently Asked Questions
12
Internal Revenue Service. Examining a Taxpayer Electing a Partial Disposition of a Building
13
Internal Revenue Service. Identifying a Taxpayer Electing a Partial Disposition of a Building
14
U.S. Department of the Treasury. Coordinating DOE Home Energy Rebates with Energy-Efficient Home Improvement Tax Credits: An Explainer