Type of Furnace

• In order to qualify for the eco-friendly tax credit for a new furnace, the IRS's Energy Star program requires you to purchase a natural gas or propane-fueled furnace. Electric furnaces do not qualify for the tax credit even if they boast environmentally friendly specifications. Furnaces powered by electric generators do not qualify for the tax credit either.
  
  

Tax Credit Amount

• An eco-friendly furnace qualifies for a $150 tax credit on your federal tax return. EnergyStar states that tax credits for environmentally friendly upgrades amount to either 10 percent of the cost up to $500 or a specific amount generally ranging from $50 to $300. Some higher priced upgrades with long-term energy impacts qualify for a 30 percent tax credit.
  
  

Qualifying Home

• An energy-efficient tax credit for a furnace is only available if the upgrade is done at your primary residence. Newly constructed homes, second homes and rental property investments do not qualify for the tax credit. The primary goal of the Energy Star program is to encourage current homeowners to invest in energy-efficient upgrades.
  
  

Second Mortgage

• If you do not plan to purchase an environmentally friendly furnace, you can still benefit from the purchase if you use a second mortgage to finance the furnace. The IRS allows you to deduct mortgage interest on your primary mortgage and your second mortgage on your federal tax return. This is an itemized expense that can be claimed on Schedule A of tax Form 1040.