How to Claim Sustainability Incentives on Your Tax Return

If you installed qualifying home energy equipment before January 1, 2026, or acquired a clean vehicle on or before September 30, 2025, you can still claim the federal sustainability incentives on your tax return by filing Form 5695 for home energy credits or Form 8936 for vehicle credits with your Form 1040. The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, terminated these credits on accelerated schedules, so purchases made after the cutoff dates no longer qualify federally, though state and utility programs may still help.¹

What You Can Still Claim and What’s Gone

Four credits are in play. Two cover the home: the Residential Clean Energy Credit under Section 25D and the Energy Efficient Home Improvement Credit under Section 25C. Two cover vehicles: the New Clean Vehicle Credit under Section 30D and the Previously-Owned Clean Vehicle Credit under Section 25E.²

The home credits ended for anything placed in service after December 31, 2025. The vehicle credits ended for anything acquired after September 30, 2025.¹ If your purchase or installation beat those deadlines, you file as usual for tax year 2025. For 2026, no new purchases qualify. The one situation where a credit still appears on a 2026 return without a 2026 purchase is a Section 25D carryforward, discussed below.

Filing for Solar, Geothermal, and Battery Installations (Section 25D)

Section 25D covers 30% of the cost of solar electric systems, solar water heaters, small wind turbines, geothermal heat pumps, fuel cells, and battery storage. There is no dollar cap for most of these; fuel cells are limited to $500 per half kilowatt of capacity.³

Read the deadline carefully. The IRS treats the expenditure as made when original installation is complete, not when you paid or signed a contract. Panels paid for in November 2025 but not finished until January 2026 do not qualify.¹

Section 25D allows carryforward. If your 30% credit exceeds your tax liability, the unused portion rolls to the following year.³ A $30,000 system generates a $9,000 credit; if you only owed $5,000 in federal tax, the remaining $4,000 shows up on your 2026 return. Keep filing until the credit is used up.

Filing for Heat Pumps, Insulation, Windows, and Audits (Section 25C)

Section 25C covers 30% of the cost of smaller upgrades, subject to annual caps. Heat pumps and heat pump water heaters share a $2,000 ceiling. A separate $1,200 overall limit applies to other improvements, with sublimits of $250 per exterior door ($500 total), $600 for windows and skylights, and $150 for home energy audits.⁴ 5

Equipment had to be placed in service by December 31, 2025. Unlike Section 25D, this credit is nonrefundable with no carryforward. If the credit exceeds your 2025 tax bill, the excess is lost.⁵ A homeowner with a $1,200 heat pump credit and an $800 tax bill collects $800 and forfeits the remaining $400.

Filing for New and Used Electric Vehicles

New Clean Vehicle Credit (Section 30D)

Section 30D provides up to $7,500 for a qualifying new electric or fuel cell vehicle, in two pieces: $3,750 for meeting the critical mineral sourcing test and $3,750 for the battery component test.⁶ Vehicles acquired after September 30, 2025 do not qualify.⁷

There is a transition rule worth knowing. If you signed a binding written contract and made a payment (even a nominal down payment or trade-in) on or before September 30, 2025, you can claim the credit when you take possession, even if delivery slipped into a later month.¹ What matters is documented acquisition before the cutoff.

Income limits still apply. Modified adjusted gross income cannot exceed $300,000 for married filing jointly, $225,000 for head of household, or $150,000 otherwise. You may use whichever is lower, the current year’s or the prior year’s income.⁸

If you transferred the credit to a registered dealer at the point of sale, you received an immediate price reduction and the dealer collected the credit from the government.⁹ For a transferred credit on a pre-deadline vehicle, no further filing action is needed for the transferred amount. If you didn’t transfer, claim it on your return.

Previously-Owned Clean Vehicle Credit (Section 25E)

Section 25E provides the lesser of $4,000 or 30% of the sale price, with the sale price capped at $25,000. The vehicle must have come from a licensed dealer. Income limits are tighter than for new vehicles: $150,000 joint, $112,500 head of household, $75,000 otherwise.¹⁰

The September 30, 2025 cutoff and the binding-contract transition rule work the same way as for the new vehicle credit.¹¹

Documentation to Have Before You File

The IRS is unlikely to be forgiving on paperwork for credits that were being wound down. Assemble everything before you start the return.

For home energy projects under Sections 25C and 25D:

A Manufacturer’s Certification Statement confirming the product qualifies. Keep it in your records; you don’t submit it with the return.¹²
Itemized receipts showing material and labor costs. Form 5695 includes labor for preparation, assembly, and installation on the same lines as the equipment, so the underlying receipts should break it out.¹³
Proof the installation was completed by December 31, 2025: contractor sign-off, inspection certificate, or permit closure.
For Section 25C, the Qualified Manufacturer Identification Number for each heat pump, heat pump water heater, and biomass unit.¹³

For vehicle purchases under Sections 30D and 25E:

The Vehicle Identification Number, required on Schedule A of Form 8936.¹⁴
If you took delivery after September 30, 2025, proof of a binding written contract and a payment made on or before that date. A signed purchase agreement and a receipt for a down payment or trade-in appraisal are the clearest evidence.¹
Confirmation the dealer was registered with the IRS and reported the sale. Without that, the vehicle is ineligible regardless of your other records.

Which Forms Go on the 1040

Home energy credits go on Form 5695, attached to your 1040. Part I is the Residential Clean Energy Credit (Section 25D); Part II is the Energy Efficient Home Improvement Credit (Section 25C).¹⁵ Under Section 25D, solar electric and solar water heating costs are entered on separate lines, and labor is included on each applicable line rather than reported separately. Under Section 25C, individual lines cover each heat pump, heat pump water heater, and biomass unit.¹³

Vehicle credits go on Form 8936 and its Schedule A, also attached to the 1040.¹⁵ If you transferred a vehicle credit to the dealer at sale, don’t claim it again; the dealer already received it. If you didn’t transfer, the credit reduces your tax liability at filing. Both vehicle credits and the Section 25C credit are nonrefundable, so they cannot exceed what you owe.

State, Utility, and Property Tax Programs That Still Exist

Federal credits weren’t the only source of relief. Many utilities offer rebates on high-efficiency equipment such as heat pumps and Energy Star-rated appliances, often as point-of-sale discounts or post-purchase reimbursements. Amounts vary by provider. The Department of Energy maintains a rebate portal, and your electric or gas utility is the direct source.¹⁶

The Inflation Reduction Act also funded two state-administered rebate programs: the Home Efficiency Rebates (HOMES) program for whole-house retrofits and the Home Electrification and Appliance Rebates program (HEAR or HEEHRA) for equipment such as heat pumps and electrical panel upgrades.¹⁷ Rollout timing differs by state, and some states began reserving funds before the OBBB was enacted. Whether remaining funds are accessible depends on your state’s program status; the state energy office can confirm.

More than 30 states offer property tax exemptions for solar energy systems, and some extend the exemption to geothermal or wind installations. The exemption excludes the added value of the system from your property’s assessed value. A $300,000 home with a $20,000 solar array continues to be taxed on $300,000. These exemptions are creatures of state tax law and were not touched by the federal terminations. Your county tax assessor’s office can confirm eligibility and documentation.

1
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
2
Internal Revenue Service. Credits and Deductions Under the Inflation Reduction Act of 2022
3
Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
4
Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit
5
Internal Revenue Service. Energy Efficient Home Improvement Credit
6
Office of the Law Revision Counsel. 26 U.S. Code 30D – Clean Vehicle Credit
7
Internal Revenue Service. Clean Vehicle Tax Credits
8
Internal Revenue Service. Credits for New Clean Vehicles Purchased in 2023 or After
9
Congress.gov. Clean Vehicle Tax Credit Transfers to Car Dealers
10
Office of the Law Revision Counsel. 26 USC 25E – Previously-Owned Clean Vehicles
11
Internal Revenue Service. Used Clean Vehicle Credit
12
ENERGY STAR. Tax Credit Definitions
13
Internal Revenue Service. 2025 Instructions for Form 5695 – Residential Energy Credits
14
Internal Revenue Service. Schedule A (Form 8936) – Clean Vehicle Credit Amount
15
Internal Revenue Service. About Form 5695, Residential Energy Credits
16
Department of Energy. Home Upgrades
17
ENERGY STAR. Home Efficiency Rebates (HOMES) Program