Energy and Water Conservation Tax Credits: What Still Qualifies

Federal energy and water conservation tax credits are in a narrow window right now: the two main residential energy credits ended on December 31, 2025, but if you completed qualifying work in 2025 or earlier you can still claim them on that year’s return. A separate credit for home EV chargers runs through June 30, 2026. Water conservation has never had its own federal credit, though utility rebates and state programs continue to offer money back for cutting water use.

What Ended and What Is Still Available

Public Law 119-21, signed on July 4, 2025, moved up the termination dates for the residential energy credits. The Energy Efficient Home Improvement Credit under Section 25C no longer applies to property placed in service after December 31, 2025.¹ The Residential Clean Energy Credit under Section 25D no longer applies to expenditures made after that same date.² Both had previously been scheduled to remain available through at least 2032.

The Alternative Fuel Vehicle Refueling Property Credit under Section 30C received a later end date. Property placed in service after June 30, 2026, no longer qualifies.³

Water conservation sits outside this framework entirely. There is no federal residential tax credit for reducing water use, and there never has been. Financial help for water conservation comes from utility rebates and state or local programs, not from the IRS.

Claiming the Energy Efficient Home Improvement Credit for 2025

If you installed qualifying efficiency upgrades in 2025 or earlier, you can still claim the Section 25C credit on the return for the year the property was placed in service. It’s a non-refundable credit, so it reduces tax owed but cannot generate a refund on its own, and unused amounts don’t carry forward.⁴

The credit is 30% of the cost of qualifying improvements, capped at $1,200 per year overall for most categories, with sub-limits inside that cap:⁴

Windows and skylights: up to $600 per year
Exterior doors: up to $250 per door, $500 total
Home energy audits: up to $150 per year
Electrical panel upgrades: up to $600, for panels rated at 200 amps or more that support energy-efficient equipment
Insulation and air sealing: within the $1,200 overall cap

Heat pumps and biomass stoves sit outside the $1,200 cap under their own $2,000 annual limit. Someone who installed a heat pump and replaced windows in 2025 could claim up to $2,600 for that year: $2,000 for the heat pump and $600 for the windows.⁴

Which Labor Counted

The labor rules are not intuitive. Installation labor counted for mechanical equipment: heat pumps, heat pump water heaters, central air conditioners, furnaces, boilers, biomass stoves, and electrical panel upgrades. Labor did not count for building envelope work. If you paid someone to install windows, doors, or insulation, only the material cost was eligible.⁵

Renters and Condo Owners

Renters could claim the credit for certain equipment installed in the U.S. home they lived in: heat pumps, water heaters, central air conditioners, biomass stoves, and home energy audits. Renters could not claim it for windows, doors, or insulation, because those building envelope items required the taxpayer to own the home. Condo owners were treated as paying their proportionate share of any qualifying improvements the association made, using a reasonable and consistently applied allocation method.⁶

Claiming the Residential Clean Energy Credit for 2025

The Section 25D credit was 30% of the total cost of a renewable energy system, equipment and labor together, with no annual dollar cap. That made it the most valuable residential energy credit for expensive installations like whole-home solar or geothermal, where costs routinely exceeded $20,000.⁷

Qualifying systems included solar electric panels, solar water heaters, small wind turbines, geothermal heat pumps, battery storage with at least 3 kilowatt-hours of capacity, and fuel cells at the taxpayer’s principal residence.² Solar roofing tiles and solar shingles that generate electricity qualified. Traditional roofing materials that merely support solar panels, like roof trusses and conventional shingles, did not.⁷

The Installation Date Rule That Catches People

For Section 25D, the credit turns on when installation was completed, not when you bought the equipment or signed the contract. The IRS treats the expenditure as made when original installation is finished. If you paid for solar panels in November 2025 but the installer didn’t finish until January 2026, the credit isn’t available. The expenditure is treated as made after the December 31, 2025, cutoff.¹ For new construction, the expenditure is treated as made when the taxpayer first uses the completed structure, so a home finished in 2026 with solar built in doesn’t qualify either.

Carrying Forward Unused Amounts

Unlike the Section 25C credit, the clean energy credit lets unused amounts carry forward to future tax years. If your 2025 credit exceeded your tax liability, the leftover rolls into 2026 and beyond until it’s fully used.⁸ A $30,000 solar system installed in 2025 generates a $9,000 credit; if you owed only $5,000 in tax that year, the remaining $4,000 applies to 2026. The carryforward stays valid even though no new credits can be earned after 2025.

The EV Charger Credit Through June 30, 2026

The one residential energy credit still available for new installations is the Section 30C Alternative Fuel Vehicle Refueling Property Credit. Place a qualifying charger in service at your primary home by June 30, 2026, and you can claim 30% of the cost, up to $1,000 per charging unit.⁹ Bidirectional chargers, which can both charge a vehicle and discharge electricity back into your home, also qualify.¹⁰

There is a geographic catch. The charger must be installed in an eligible census tract, meaning either a low-income community or a non-urban area as defined by the most recent Census data. To check, look up your property’s 11-digit census tract identifier using the Census Bureau’s tool, then cross-reference it against the IRS’s Appendix B list, which uses 2020 Census tracts for property placed in service after January 1, 2025.¹¹ If your tract isn’t on the list, the credit isn’t available regardless of the charger’s cost.

Water Conservation: No Federal Credit, but Rebates Matter

Water conservation has always been a state and local matter rather than a federal tax credit. Those programs are unaffected by the federal energy credit changes, and in drought-prone regions they can be substantial. Turf replacement rebates are among the most common, paying a set amount per square foot of grass replaced with drought-tolerant landscaping. Local water districts often offer direct rebates for high-efficiency irrigation equipment such as drip conversion kits and weather-based controllers. Some municipalities offer grants or property tax reductions for rainwater harvesting systems like cisterns and collection barrels. Amounts, eligibility, and application rules vary widely by region and shift with drought conditions and funding.

A number of states also offer sales tax exemptions for energy-efficient products, from short tax holidays to permanent exemptions on qualifying appliances. These apply at the point of sale, with no special filing.

How Rebates Are Taxed

Section 136 of the Internal Revenue Code excludes from gross income any subsidy a public utility provides to help a customer reduce electricity or natural gas consumption. A rebate from your electric company for a high-efficiency heat pump is not taxable income.¹² Section 136 is specifically limited to electricity and natural gas and does not cover water conservation subsidies. A rebate from your water utility for replacing your lawn does not fall under this exclusion.

Separately, the IRS has ruled that rebates under the Department of Energy’s Home Energy Rebate Programs are treated as purchase price adjustments rather than income, so they’re also not taxable, but they reduce your basis in the property by the rebate amount.¹³

For water conservation rebates specifically, tax treatment depends on how the program is structured. Many function as purchase price reductions and aren’t reported as income, but the IRS has not issued blanket guidance for water incentives the way it has for energy. If the amount is substantial, check with the utility or a tax professional.

Filing on Form 5695

Report 2025 credits on IRS Form 5695. Part I covers the Residential Clean Energy Credit (Section 25D), and Part II covers the Energy Efficient Home Improvement Credit (Section 25C).¹⁴ The completed form attaches to Form 1040.¹⁵ Electronic filing software handles the attachment automatically; paper filers should staple the form to the return.

For 2025, a new requirement applies to Section 25C claims: you must include the four-character manufacturer identification number (QMID) for each qualifying item placed in service during the year.¹⁵ The number appears on the manufacturer’s certification statement that came with the product. If you’ve misplaced it, contact the manufacturer or check their website.

Alongside the QMID, keep:

Manufacturer certification statements confirming the product meets efficiency standards
Itemized receipts separating equipment from labor, since labor eligibility differs by improvement type
Installation completion dates, which are what prove the work finished before December 31, 2025
Energy audit reports, if claiming the $150 audit credit; the audit must have been performed by or under the supervision of a certified home energy auditor

The IRS generally requires supporting records for at least three years from the date you filed the return.¹⁶ With final-year claims likely to draw scrutiny, hold them longer.

Shared Costs Between Occupants

When multiple people share a home and split the cost of a qualifying improvement, each files their own Form 5695, and the credit is divided by what each person actually paid. For Section 25C, each occupant’s share of the credit is proportional to their share of the payment, and the per-item and aggregate limits ($1,200 general, $2,000 for heat pumps) apply to each person individually based on that same fraction.¹⁵ Married couples filing jointly file one Form 5695 together. If you’re claiming a shared-cost credit, check the box on line 32a of Form 5695 and attach a statement explaining the allocation.

1
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
2
Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
3
Internal Revenue Service. One, Big, Beautiful Bill Provisions
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Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit
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Internal Revenue Service. Frequently Asked Questions About Energy Efficient Home Improvements and Residential Clean Energy Property Credits – Labor Costs
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Internal Revenue Service. Frequently Asked Questions About Energy Efficient Home Improvements and Residential Clean Energy Property Credits – Qualifying Residence
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Internal Revenue Service. Residential Clean Energy Credit
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Internal Revenue Service. New and Improved 25C and 25D Credits for Home Energy
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Internal Revenue Service. Alternative Fuel Vehicle Refueling Property Credit
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Office of the Law Revision Counsel. 26 USC 30C – Alternative Fuel Vehicle Refueling Property Credit
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Internal Revenue Service. Alternative Fuel Vehicle Refueling Property Credit for Tax-exempt Entities
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Office of the Law Revision Counsel. 26 US Code 136 – Energy Conservation Subsidies Provided by Public Utilities
13
Internal Revenue Service. Announcement 2024-19
14
Internal Revenue Service. Form 5695 – Residential Energy Credits
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Internal Revenue Service. Instructions for Form 5695
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Internal Revenue Service. How Long Should I Keep Records