Energy Star products are sometimes tax free, but it depends on where and when you buy them and what kind of tax break you mean. Several states waive sales tax on Energy Star certified appliances during designated holiday weekends, so you pay the sticker price with no state tax added. The federal income tax credit that rewarded Energy Star home improvements, the Energy Efficient Home Improvement Credit under Section 25C, expired for any equipment placed in service after December 31, 2025.1Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit If you installed qualifying equipment during 2025, you can still claim that credit on the 2025 return you file in 2026.
State Sales Tax Holidays on Energy Star Products
Several states temporarily suspend sales and use taxes on Energy Star certified products during designated weekends, typically around Memorial Day, Presidents’ Day, or Labor Day. During these windows you pay no state sales tax at the register, and local jurisdictions within participating states generally follow the same schedule.
Qualifying products usually include air conditioners, refrigerators, washing machines, dryers, dehumidifiers, and programmable thermostats. Some states impose price caps. One state, for example, limits the exemption to air conditioners priced at $6,000 or less and refrigerators at $2,000 or less; if the total sales price including delivery exceeds the cap, tax applies to the full amount. Other states exempt a broader list with no price limit. Check your state comptroller or revenue department website a few weeks before the holiday to confirm dates, eligible items, and any thresholds.
For sales tax holidays, the qualification bar is simple: the product needs the Energy Star label. You don’t need to verify any higher efficiency tier. If it carries the blue Energy Star logo, it qualifies during the tax-free window.
The Federal Tax Credit Ended December 31, 2025
The Energy Efficient Home Improvement Credit let homeowners claim 30% of the cost of qualifying energy-efficient upgrades, up to $3,200 per year. Congress expanded it through the Inflation Reduction Act, and it ran from January 1, 2023 through December 31, 2025.2Internal Revenue Service. Energy Efficient Home Improvement Credit The statute terminates the credit for any property placed in service after that date.1Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit
So if you buy and install a heat pump or new insulation in 2026, no federal income tax credit is available under Section 25C. Congress could reinstate the credit in future legislation, but no extension has been enacted. If you made qualifying improvements during the 2023–2025 window and haven’t yet claimed the credit, you still can when filing the return for the year the equipment was installed.
What the Credit Covered for 2025 Installations
The credit equaled 30% of qualifying expenses, with a maximum of $3,200 per year split across two independent limits. There was no lifetime cap.2Internal Revenue Service. Energy Efficient Home Improvement Credit
The $1,200 General Limit
Up to $1,200 per year covered building envelope improvements and standard energy property, with sub-limits for specific items:3Office of the Law Revision Counsel. 26 US Code 25C – Energy Efficient Home Improvement Credit
- Exterior doors: $250 per door, $500 total
- Windows and skylights: $600 total, and they had to meet Energy Star Most Efficient certification, not just regular Energy Star2Internal Revenue Service. Energy Efficient Home Improvement Credit
- Insulation and air sealing: materials and systems meeting International Energy Conservation Code standards
- Central air conditioners, furnaces, and boilers: $600 per item
- Electrical panel upgrades: $600 for panels with at least 200-amp load capacity installed to support qualifying equipment4ENERGY STAR. Electric Panel Upgrade Tax Credit
- Home energy audits: $1503Office of the Law Revision Counsel. 26 US Code 25C – Energy Efficient Home Improvement Credit
The $2,000 Heat Pump Limit
A separate $2,000 annual limit applied to heat pumps, heat pump water heaters, and biomass stoves or boilers.2Internal Revenue Service. Energy Efficient Home Improvement Credit It sat independent of the $1,200 limit, which is how the combined maximum reached $3,200. Heat pumps and heat pump water heaters had to meet the highest efficiency tier established by the Consortium for Energy Efficiency.5Department of Energy. Tax Credit Product Lookup Tool Biomass stoves needed a thermal efficiency rating of at least 75%.6ENERGY STAR. Biomass Stoves and Boilers Tax Credit
Labor Costs and Who Could Claim It
One detail that tripped people up: installation labor counted toward the credit for some products but not others. Labor for installing heat pumps, central air conditioners, water heaters, and other residential energy property was eligible. Labor for building envelope components like windows, doors, and insulation was not.2Internal Revenue Service. Energy Efficient Home Improvement Credit If you paid $1,500 for a window installation in 2025, the credit applied to the cost of the windows themselves, not the installer’s bill.
The credit was nonrefundable, meaning it could zero out your tax bill but wouldn’t generate a refund beyond that. Unused credit did not carry over.2Internal Revenue Service. Energy Efficient Home Improvement Credit Both homeowners and renters were eligible, and the credit applied to second homes used as residences. Landlords who didn’t live in the property could not claim it, and homes used exclusively for business were excluded.7Internal Revenue Service. Home Energy Tax Credits
How to Claim the Credit for 2025 Improvements
You claim the credit on IRS Form 5695, attached to your Form 1040.8Internal Revenue Service. Instructions for Form 5695 (2025) The form separates building envelope improvements from residential energy property, so costs go in different sections depending on what you installed.
For heat pumps, line 29a asks for the Qualified Manufacturer Identification Number (QMID) and cost of the most expensive qualifying heat pump you installed. Line 29b covers any additional heat pumps, with a required attached statement listing each unit’s QMID and cost.8Internal Revenue Service. Instructions for Form 5695 (2025) Central air conditioners, furnaces, and boilers go in separate line items within the form’s energy property section.
Manufacturers of qualifying equipment were required to register with the IRS and assign a four-character QMID to each qualifying product.9Internal Revenue Service. Energy Efficient Home Improvement Credit Qualified Manufacturer Requirements You need that number for Form 5695. It typically appears on the manufacturer’s certification statement, which most manufacturers post on their websites. Keep the certification along with your purchase receipt showing the date, retailer, and amount paid. You don’t submit the certification with your return, but the IRS expects you to have it available if questions arise.10ENERGY STAR. Tax Credit Definitions The DOE’s Tax Credit Product Lookup tool at regulations.doe.gov can help verify whether a specific model met the higher federal credit standards.5Department of Energy. Tax Credit Product Lookup Tool
What Federal Incentives Remain in 2026
With the 25C credit expired, federal rebate programs are the main remaining incentive for energy-efficient upgrades. The High-Efficiency Electric Home Rebate Act (HEEHRA), also funded by the Inflation Reduction Act, offers point-of-sale rebates rather than year-end tax credits. These rebates are administered state by state, so availability depends on whether your state has launched its program and whether funding remains.
Where available, HEEHRA rebates for heat pump HVAC systems can reach $8,000 for households earning less than 80% of area median income and $4,000 for households between 80% and 150% of area median income. Households above 150% of area median income are not eligible. Some states have exhausted their initial allocations and are running waitlists, so contacting your state energy office early is worthwhile.
Many local utilities also offer their own rebates for Energy Star certified HVAC systems, water heaters, and insulation. These vary by provider and region. Your utility’s website or the Database of State Incentives for Renewables and Efficiency (DSIRE) can show what’s available in your area.
State sales tax holiday savings don’t affect any federal calculation. You paid less tax at the register, and that’s the end of it. For upgrades installed in 2026, you can combine HEEHRA rebates where available with utility rebates and state sales tax holidays without worrying about federal credit interactions, because the federal credit no longer exists for new installations.