Is it time for an HVAC upgrade?

Jason Van Steenwyk
Jason Van Steenwyk | 3 min. read
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Published on October 27, 2016

The Old Farmer’s Almanac was a coffee table book in our house growing up—a necessity for harsh New England winters! And this year, the trusty Almanac is predicting some rough weather: snow is expected to start falling in New Hampshire as early as November.

All that is to say, if you’re planning to repair or replace your HVAC units or furnaces, now’s the time. But do you know if it makes more sense to replace aging units or just maintain them for another season?

The general rule of thumb is: If annual repair costs are more than 10 percent of what it would cost to replace the unit, you may as well replace it. A 10 percent return on capital is a solid return in today’s environment—especially if you’re able to invest in something far more efficient.

One way to know if you’ll get a return is to check your furnace’s annual fuel utilization efficiency rating (AFUE), which measures how efficient your unit is in converting fuel energy into heat. The higher the rating, the more efficient it is: a 90 percent AFUE rating on a gas furnace means only 10 percent of the heating will escape out the chimney or elsewhere.

All-electric furnaces and boilers are generally less efficient, but a high-efficiency system should have sealed combustion, condense flue gases in a second heat exchanger, and log an AFUE rating of 90 to 98.5 percent.

According to information from the Department of Energy, replacing an older furnace or boiler with a high efficiency unit, together with upgrades to flues, vents and other systems and reasonable investment in insulation, can cut energy consumption in half. This is a big improvement over old, low-efficiency systems – ones that operate on a continuous pilot light, and log AFUE ratings of only 56 to 70 percent.

If you do decide to switch out your units, be sure to let your accountant know. IRS MACRS rules require that landlords depreciate HVAC units and furnaces in residential properties over 27.5 years. Many won’t last that long, so you’ll want your accountant to know you’re swapping out this capital equipment so they can work with you to claim accelerated depreciation when you replace the old units.

But if you decide to repair instead of replace, you’ll also see some benefits: repair costs are generally fully deductible in the current tax year.

Plan Ahead for Upgrades

You may be able to qualify for subsidies or other incentives to invest in things like insulation upgrades, better quality HVAC units, furnaces and other appliances, programmable thermostats and other energy efficient improvements. The U.S. Department of Energy, via the Office of Energy Efficiency & Renewable Energy, provides assistance in the form of grants to state and tribal governments to run their own programs according to local needs.

Two such programs include the Mass Save Multi-Family Retrofit Program and the Multifamily Retrofit program in Puget Sound. These programs provides various incentives for the following improvements:

  • Energy efficient lighting upgrades & controls
  • Occupancy sensors
  • Water heating equipment
  • Installation of low-flow showerheads
  • Programmable thermostats
  • Insulation
  • Air sealing
  • High-efficiency heating and cooling equipment upgrades
  • ENERGY STAR-qualified refrigerators and other eligible appliances
  • Other energy improvements determined on a site-specific basis.

You’ll want to look into programs in your area, which will provide incentives for upgrades that are best in your climate and area.

Read more on Maintenance & Improvements
Jason Van Steenwyk

Jason is a freelance writer and editor, as well as an avid fiddler. His articles have been published in a number of real estate publications including Wealth and Retirement Planner and Bankrate.com. He lives in Fort Lauderdale, FL with his cat, Sasha, and an unknown number of musical instruments.

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