Tax Relief for a New Air Conditioner

The Italian "Ecobonus"

As the summer heatwave starts to make itself felt, we turn to air conditioning systems. The price of air conditioning kit continues to fall but given that for, fixed systems, at least, professional help with installation is a must, the cost can be expensive.

The Italian “Ecobonus” regime – tax relief on the purchase of air conditioning.

By purchasing an air conditioner, dehumidifier or heat pump you might be entitled to some tax relief such as a:

  • 65% tax credit for the purchase of air conditioners with energy-efficient heat pumps which replace an existing heating system or air conditioning system. Maximum annual spend is Euro 46,154;
  • 50% tax credit  for a new energy-saving heat pump system together with building refurbishment. Maximum expenditure available for relief is Euro 96,000 up to  31 December 2019;
  • VAT reduction  – from 22% to 10% of VAT on the works for the installation of the new plant and on an equivalent amount of new kit, in the case of replacement of an old heat pump system;
  • 50% tax deduction for class A condensing boilers, biomass units and solar shading.

Points to note

The work done must include equipment that can heat the house, not just produce fresh air. An air conditioner works like a fridge in reverse. A fridge transfers the natural heat in the air inside the fridge and expels it into the air in your kitchen, thus cooling the refrigerant which cools the air inside the fridge.  An air conditioner takes the heat out of the air inside your house and expels it into the atmosphere outside.  Both work by virtue of a “heat pump” and modern heat pump systems can work in both directions, heating your house in winter and cooling it in summer. If you want to get the tax bonus you need to buy heat pump air conditioning, capable of heating the home as well as cooling it. Kit that produces cold air (inside the house, such as most portable conditioners) is excluded from the tax benefit, unless it forms part of wider series of works, replacing existence plant.

The tax break is to encourage the sale, and the proper, certified, installation, of new energy saving technology.

The payment for the work and kit must be made by bank transfer with the “casuale”  – the information box on the bank transfer form, containing certain information about the supplier and installation.  The bank will operate an 8% withholding tax so that the supplier gets 92% of what you pay.

How To Request The Bonus

The Italian authorities intend that the tax lost on giving consumers these tax breaks will be replaced by the tax paid by installers who are encouraged to issue invoices for the supply of the kit and the installation work.  The tax break is also given as an incentive to replace existing less energy efficient plant. So buying the kit for cash at a builder’s merchant and paying the installer in cash is not going to cut the mustard.  Reputable suppliers will explain the procedure to you in advance and issue you with the necessary documentation to be be able to claim the tax benefit in your annual tax return  (730 or PF) for the year in which you make the purchase and the following years.  You should ensure that the contact with the supplier contains that obligation.

The VAT benefit is given immediately by way of reduction in the price.  The income tax benefit (65% or 50% of the cost) is deducted from the income tax in the your annual return over the ten years following the year of purchase.

By way of example if you spend Euro 1,540 euros, on new plant and installation (including the VAT) and you are entitled to a tax “bonus” of Euro 1,000, then the benefit will be given to you as to Euro 100 per year as a reduction of your personal income tax (“IRPEF“) bill for the following 10 years.

Of course you need to have taxable income to be able to use the tax benefit. If you only have income from self-employment subject to the Small taxpayers – Flat Rate Tax Regime 2019 or investment income subject to the flat rate 26% substitute tax, you are not going to see any benefit, unless you can take account of the rather complex rules for selling the tax credit (to the supplier).  Individuals who earn below the tax threshold can also sell the tax credit, if the supplier agrees.

Is the Game worth the (electric) Candle?

The answer to this question must be considered on the basis of the total investment made.  A single air conditioning unit (split or portable) does not have a particularly high cost (an average cost of say Euro 400 to 1,000), to which must be added the cost of a technical report on the energy saving characteristics.  So the tax benefit is likely only to be worthwhile in the context of wider restructuring where you are replacing say the new boiler, refurbishing the property or installing solar panels the total cost for the entire intervention in this case is high, and at this point it may be more interesting to go through the procedure for the tax “bonus”.

The important thing, before starting everything, is to have a clear understanding of what you intend to do and, above all, do the maths well: to request the services of a technical expert for a contract that will eventually give only a small tax benefit over ten years is not likely to be beneficial, which is why you need to be wary of buying air conditioning equipment on the basis of the retailers’s promise that you are entitled to a tax “bonus”.

If, instead, the purchase is part of a wider context or replacement of an old inefficient heating/cooling system, undertaken by a reputable firm, you should not have a problem securing the tax benefit.

How long will the breaks last?

The tax breaks mentioned above are expressed in the law generally to last for a year.  Many of the breaks have been renewed, albeit with modifications, year after year, but there is no guarantee that they will continue, especially since simplification and extending the flat rate tax regimes seem to be in vogue.   It is also in the nature of the regime, that it is better to roll as much work into a contract as possible, so as to spread the cost of the technical report and administrative formalities over as much expenditure as possible. So now is the moment.

Further Resources

ENEA FAQ’s (in Italian)

Italian Tax Agency Guide (in Italian)

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