With the passing of the American Taxpayer Relief Act of 2012, the tax credit for biomass stoves (i.e wood furnaces and wood boilers) has been retroactively renewed through the end of 2013. So, any qualified equipment purchased from January 1, 2012 through December 31, 2013 is eligible for this credit. The tax credit is now set at $300 for high-efficiency biomass stoves that use “plant-derived fuel available on a renewable or recurring basis, including agricultural crops and trees, wood and wood waste and residues (including wood pellets), plants (including aquatic plants), grasses, residues, and fibers)”.
To learn more about the tax credit and what is eligible please visit the Database of State Incentives for Renewables & Efficiency (DSIRE). The tax credit is also limited to a $500 “lifetime limit”, so you will want to consult with your tax preparer. The federal tax form required is located here.
It may be helpful to understand the differences between a tax credit and a rebate. Perhaps the best way to illustrate the difference is use an example:
Let’s say that you purchased a wood furnace that cost $10,000 and the appliance had $300 rebate. Rebates are often provided at the time of sale, so your effective price would be $9,700. Contrast this with a $300 tax credit for the same $10,000 appliance. You would pay the full price for the appliance and then complete form 5695 and send it with your federal tax return. The $300 would be applied against your tax bill, increasing your return or reducing the amount you need to pay the IRS.
Either way, it is more money in your pocket.