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Income Tax Credit Available for 26% of Purchase and Installation Costs of Qualifying Pellet and Wood Heating Appliances

A spending legislation and pandemic relief package was signed into law at the very end of December and included a long sought-after tax credit for wood and pellet heating appliances. These systems, whether they are stoves purchased to heat space or larger, whole-home heating systems, will now qualify for a renewable energy investment tax credit (Section 25(D) of the Internal Revenue Code). Up until now, only solar, small wind, fuel cell, and geothermal systems qualified for this credit. 

Beginning in 2021, consumers buying qualifying wood or pellet appliances or larger residential biomass heating systems will be able to claim an income tax credit on 26% of the full cost (purchase and installation) of the unit. The credit will remain at 26% through 2021 and 2022, stepping down to 22 percent in 2023. This provision is part of the Biomass Thermal Utilization (BTU) Act, which has been actively supported by the PFI and our partners in the wood heating category for nearly a decade, most recently being a key component of our talking points during our federal policy advocacy day in October of 2019.

NOTE: The language that made it into the final spending package eliminates the Sec. 25(C) credit for biomass stoves. The Sec. 25(C) tax credit may still be claimed on your 2020 tax return for qualifying purchases and installations completed before December 31, 2020.

What is this new tax credit?

  • Effective Dates: The new tax credit under Sec. 25(D) of the U.S. Internal Revenue Code (“IRC” or “tax code”) came into effect on January 1, 2021 for qualifying wood and pellet appliance purchases and installations completed on or after that date, through December 31, 2023
  • Credit Amount: This new legislation creates a new tax credit of 26 percent of the purchase and installation costs (with no cap or lifetime limit) for tax years 2021 and 2022; stepping down to 22 percent in 2023 (under Sec. 25D of the U.S. tax code)
  • Qualifying Products: Require qualifying products (any biomass-fueled heater) be at least 75 percent efficient per the higher heating value (HHV) of the fuel. The EPA’s wood stove database can be accessed here. Here is a list of qualifying wood pellet appliances (extracted from the EPA database).

What happens to the 25(C) tax credit?

  • This new legislation eliminates the tax credit for biomass stoves under IRC Sec. 25(C) starting in 2021 and enacts this provision in its place.
  • Any product purchased in 2020 that qualifies for the new Sec. 25(D) credit, but isn't installed until 2021, can be claimed under the Sec. 25(D) credit on a 2021 tax return. Products must be claimed on the tax return year in which the product installation is complete. 

See the PFI’s Frequently Asked Questions (FAQs) page for more information.

Review FAQs

 

The PFI will work to keep information about qualifying appliances, updates to important and required tax forms and any other developments current. Please contact [email protected] with any questions or comments.

*Information adapted with thanks from the Hearth, Patio, & Barbecue Association.