The federal tax credit for energy-efficient HVAC equipment, known as the Section 25C Energy Efficient Home Improvement Credit, ended for any property placed in service after December 31, 2025. If your qualifying system was installed on or before that date, you can still claim 30 percent of the cost (up to annual caps) on your 2025 tax return. New installations in 2026 and later no longer qualify for this federal credit.1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D Under Public Law 119-21
The Inflation Reduction Act of 2022 had originally extended the credit through December 31, 2032. The One Big Beautiful Bill Act, signed on July 4, 2025, moved the termination date up by seven years. The IRS has not announced a transition rule, so the only date that matters is when your equipment was placed in service, meaning physically installed and ready for use.1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D Under Public Law 119-21 The Section 25D Residential Clean Energy Credit, which covered geothermal heat pumps and solar, was terminated on the same date.2Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
Which HVAC Equipment Qualified
If installed on or before December 31, 2025, the following equipment qualified:
- Air-source electric and natural gas heat pumps
- Heat pump water heaters
- Central air conditioners
- Natural gas, propane, or oil furnaces
- Natural gas, propane, or oil hot water boilers
- Biomass stoves and boilers with a thermal efficiency rating of at least 75 percent
Each piece of equipment had to meet or exceed the highest efficiency tier set by the Consortium for Energy Efficiency at the time of installation.3U.S. Department of Energy. Tax Credit Product Lookup Tool The Department of Energy’s product lookup tool lets you verify eligibility by model number, and manufacturers generally labeled compliant products. Equipment that fell below the required efficiency tier did not qualify regardless of cost.
Labor for on-site installation counted toward the qualifying cost for heat pumps, central air conditioners, furnaces, hot water boilers, and biomass stoves or boilers.4Internal Revenue Service. Energy Efficient Home Improvement Credit Your 30 percent calculation runs on the full project cost, not just the hardware price.
Electrical work needed to support the new HVAC equipment can also qualify. Panelboards, sub-panelboards, branch circuits, and feeders are eligible when the panel has a capacity of 200 amps or more and meets the National Electric Code. These items carry a $600 per-item limit and count toward the $1,200 general annual cap rather than the separate heat pump cap.4Internal Revenue Service. Energy Efficient Home Improvement Credit
How Much You Can Claim
The credit equals 30 percent of qualifying costs, but annual dollar caps limit the actual amount:5Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit
- Heat pumps, heat pump water heaters, and biomass stoves or boilers: up to $2,000 per year, separate from the general cap below
- Central air conditioners: up to $600 per unit
- Furnaces and hot water boilers: up to $600 per unit
- General annual cap: $1,200 total for qualifying improvements other than heat pumps, heat pump water heaters, and biomass equipment
The heat pump category runs independently of the $1,200 general cap. A homeowner who installed a furnace ($600), a central air conditioner ($600), and a heat pump water heater in the same year could claim up to $3,200 in combined credit.4Internal Revenue Service. Energy Efficient Home Improvement Credit
The credit is nonrefundable. It can reduce your federal income tax to zero, but any unused portion is lost and does not carry forward to a future year.5Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit You get the full benefit only if your tax liability at least matches the credit.
Who and What Properties Qualify
The credit applies only to an existing home in the United States that you own and use as your primary residence for most of the year.5Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit New construction does not qualify, because the program targets upgrades to existing housing. Rental properties where you do not live, second homes, and properties used solely for business are also excluded. If you own a multi-unit building and live in one of the units, you can claim the credit for improvements to your own unit.
How to Claim the Credit for a 2025 Installation
To claim the credit, complete IRS Form 5695 (Residential Energy Credits) and attach it to your Form 1040 for the year the equipment was placed in service.6Internal Revenue Service. About Form 5695, Residential Energy Credits For 2025 installs, that means the return you file in 2026. If you installed qualifying equipment in 2023 or 2024 but didn’t claim the credit, you can file an amended return for that year.
Keep these records to support your claim:
- Purchase receipts and invoices showing equipment cost, labor cost, purchase date, and the date the system was placed in service
- The Manufacturer Certification Statement confirming the equipment meets Section 25C efficiency standards, available from the installer or the manufacturer’s website
- Model number verification, with the number on your receipt matching the certification statement exactly; discrepancies can lead to a denied credit
Keep the records for at least three years after filing the return that claims the credit, which is the IRS’s standard audit window.7Internal Revenue Service. How Long Should I Keep Records?
What’s Available for 2026 Installations
No replacement federal tax credit currently covers residential HVAC equipment installed in 2026. Other incentives may still help.
The Inflation Reduction Act also created the Home Electrification and Appliance Rebate program, which provides point-of-sale rebates for heat pumps and other electric appliances. States administer the rebates, and eligibility is generally tied to household income relative to area median income, with larger rebates going to lower-income households. Availability, funding status, and rebate amounts vary by state. Some states launched their programs in 2025 while others are still rolling them out, so check with your state energy office before assuming a rebate is available.
Many local utility companies offer their own rebates for high-efficiency HVAC installations, typically ranging from a few hundred to several thousand dollars. These are independent of any federal program and are worth checking with your electricity or gas provider before you schedule an installation.