Can You Write Off a New Furnace on Your Taxes?

You generally cannot write off a new furnace on your taxes as a straight deduction if it goes into your personal home, and the federal energy credit that used to cover 30% of the cost ended for equipment installed after December 31, 2025.¹ What a furnace can still do is reduce your taxes in three other ways: it adds to your home’s cost basis for the day you sell, it opens a proportional deduction if you have a qualifying home office, and it depreciates against rental income if the property is a rental.

The Federal Energy Credit Ended After 2025

The Energy Efficient Home Improvement Credit under Section 25C paid 30% of the cost of a qualifying high-efficiency furnace, capped at $600 per furnace within a broader $1,200 annual limit.² The Inflation Reduction Act had extended it through 2032, but the One Big Beautiful Bill Act moved the expiration up to December 31, 2025.³

The trigger is when the furnace was placed in service, not when you paid for it. A unit paid for in December 2025 but installed in January 2026 does not qualify.⁴ If your furnace was fully installed and operational at any point during 2025, you can still claim the credit on your 2025 return using Form 5695. For a natural gas furnace, that generally required an Annual Fuel Utilization Efficiency rating of 97% or higher, and you need the manufacturer’s certification statement confirming it.⁵ The credit is nonrefundable, does not carry forward, and applies only to your main home, so rental properties, vacation homes, and new construction were never in scope. Claiming it also requires you to reduce your home’s basis by the credit amount.

A New Furnace Adds to Your Home’s Basis

For a personal residence, a new furnace is a capital improvement, not a repair. Repairing a cracked heat exchanger or swapping a thermostat is a repair. Replacing the entire heating unit adds value and extends the property’s useful life, so the cost goes into your home’s adjusted basis instead of being deductible in the year you paid.

Basis matters at sale. Buy a home for $300,000, spend $10,000 on a furnace, and your basis becomes $310,000. Sell for $450,000, and your taxable gain is $140,000 instead of $150,000.

Be realistic about whether this will actually save you money. The home-sale exclusion shields up to $250,000 of gain (or $500,000 if married filing jointly) on a primary residence you’ve lived in for at least two of the last five years.⁶ Unless your gain runs past those thresholds, the basis bump from a furnace does nothing for you at closing. Track the cost anyway. Long holding periods, major appreciation, and multiple large improvements are what push gains past the exclusion, and by then it’s too late to reconstruct receipts.

Home Office Deduction if You’re Self-Employed

If you’re self-employed and use part of your home exclusively and regularly as your principal place of business, a share of the furnace cost becomes deductible. Because a furnace heats the whole house, it’s an indirect expense: you allocate it by the business-use percentage of the home, typically the office square footage divided by the total.⁷

Two conditions shape what this is worth. First, only the actual-expense method for the home office lets you separate out capital improvements like a furnace, and even then you depreciate your business share rather than deducting it all at once. The simplified method ($5 per square foot, up to 300 square feet) allows no separate depreciation for improvements.⁸ If you normally use the simplified method and just installed a furnace, run the numbers both ways for that year. Second, home office deductions cannot exceed the gross income from the business using the office; any excess carries forward.⁷

Depreciation on a Rental Property Furnace

Rental property owners get the cleanest write-off. The full cost of the furnace, including installation labor, is recovered through depreciation against rental income on Schedule E.

The IRS treats a furnace as a structural component of residential rental property, which puts it in the 27.5-year recovery period under MACRS using the straight-line method with a mid-month convention.⁹ A $10,000 furnace produces roughly $364 a year in depreciation. Small annually, but it runs every year of the recovery period.

Two accelerators that landlords often ask about do not apply. Section 179 expensing excludes structural components of buildings; the special HVAC election is limited to nonresidential property, not residential rentals.¹⁰ Bonus depreciation, restored to 100% for qualified property placed in service after January 19, 2025, generally requires a recovery period of 20 years or less, and a residential rental furnace at 27.5 years does not qualify.⁹

Immediate Deduction for Component Repairs

If the work is a component replacement rather than a whole new unit, the de minimis safe harbor may let you expense it immediately. The threshold is $2,500 per invoice, or $5,000 with audited financial statements.¹¹ A blower motor or igniter that comes in under the cap can be deducted in the year of the work. A full furnace replacement will almost always exceed $2,500, so this is a repair tool, not a replacement tool.

Partial Disposition of the Old Furnace

When you replace an old furnace, its unrecovered basis is still on the building’s depreciation schedule, dribbling out tiny deductions for years. A partial disposition election lets you recognize that remaining basis as a loss in the year of the replacement.¹²

There’s no separate form for the election. You make it by reporting the loss on a timely filed return (including extensions) for the year the old furnace was disposed of, using Form 4797.¹³ You need the adjusted basis of the old furnace, meaning its original cost minus depreciation already taken. If your records don’t show the original cost, the IRS accepts reasonable estimation methods, such as discounting the replacement cost back to the placed-in-service year with a producer price index.

What About Rebates on Furnaces?

Federal point-of-sale rebate programs funded by the Inflation Reduction Act are electrification programs. The Home Electrification and Appliance Rebates program is aimed at heat pumps, heat pump water heaters, and electric appliances, not gas, oil, or propane furnaces. If you’re willing to switch to a heat pump instead of replacing your furnace, the rebate can reach $8,000 for lower-income households, though funding and availability run through state energy offices and some states have already reserved their allocations.¹⁴ Check your state before assuming the money is there.

Records to Keep

Whichever path applies, the documentation is what holds up the deduction. Keep the original invoice showing equipment and labor separately. If you’re claiming the 25C credit on a 2025 return, hold the manufacturer’s certification statement. For a rental, keep a depreciation schedule that tracks the furnace as its own asset with a placed-in-service date, cost, and running accumulated depreciation. If you make a partial disposition election, keep the records or calculations behind the old unit’s original cost and remaining basis. Hold these for at least three years after the return that includes the final depreciation deduction or the sale of the property, and longer if the improvement still affects your home’s basis.

1
Internal Revenue Service. One Big Beautiful Bill Provisions
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Internal Revenue Service. Energy Efficient Home Improvement Credit
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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)
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Internal Revenue Service. Topic No. 701, Sale of Your Home
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Office of the Law Revision Counsel. 26 U.S. Code 280A – Disallowance of Certain Expenses in Connection With Business Use of Home
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Internal Revenue Service. Simplified Option for Home Office Deduction
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Internal Revenue Service. Publication 527 (2025), Residential Rental Property
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Internal Revenue Service. Publication 946 (2025), How to Depreciate Property
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Internal Revenue Service. Tangible Property Regulations – Frequently Asked Questions
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Internal Revenue Service. Examining a Taxpayer Electing a Partial Disposition of a Building
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Internal Revenue Service. Identifying a Taxpayer Electing a Partial Disposition of a Building
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U.S. Department of the Treasury. Coordinating DOE Home Energy Rebates with Energy-Efficient Home Improvement Tax Credits: An Explainer