Tax Credit For Wood and Pellet Heaters: 2023 Update

wood heat tax credit 2023

Wood heat users may be aware that a significant tax credit was available for qualifying wood heaters purchased between January 1, 2021 and December 31, 2022. That tax credit was referred to as the “Investment Tax Credit” (section 25(D) of the Internal Revenue Code), and it allowed for uncapped credit of up to 26% on qualifying heaters.

The Investment Tax Credit is no longer available as of January 1, 2023. However, the good news for everyone using wood heat in the United States is that new legislation has recently passed with an even more significant credit.

In August 2022, the United States passed the Inflation Reduction Act (IRA), which allows high-efficiency biomass heating products to qualify for a 30% tax credit capped at $2,000 annually (section 25(C) of the Internal Revenue Code). This tax credit can be used on the purchase and installation costs of qualified heating products installed between January 1, 2023 and December 31, 2032. Qualifying appliances must have a thermal efficiency of at least 75% per the higher heating value (HHV) of the fuel. If a heating product meets the efficiency requirements and was purchased in 2022, but not installed until 2023, it can be claimed on a 2023 tax return. All products must be claimed on the tax return year in which the installation is complete.

The Hearth, Patio, & Barbecue Association (HPBA) has an in-depth summary of how to use the credit, apply for it, and much more information available here.