The federal tax credit for heat pumps ended on December 31, 2025. If your heat pump was placed in service by that date, you can still claim up to $2,000 on your 2025 tax return under Internal Revenue Code Section 25C.1Internal Revenue Service. One, Big, Beautiful Bill Provisions Heat pumps installed on January 1, 2026, or later do not qualify for any federal tax credit, though certain households may still be eligible for state-administered rebate programs funded by the federal government.
Why the Credit Ended Early
The Inflation Reduction Act of 2022 originally extended the Section 25C Energy Efficient Home Improvement Credit through the end of 2032. In July 2025, the One Big Beautiful Bill Act (Public Law 119-21) amended the statute to end the credit for any property placed in service after December 31, 2025.2Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21 The same law terminated the separate Section 25D Residential Clean Energy Credit, which covered geothermal heat pumps, for expenditures made after that date.
The controlling date is when the equipment was “placed in service,” meaning fully operational in your home. A heat pump running by December 31, 2025, qualifies even if you file your return in 2026. A heat pump that came online on January 1, 2026, or later does not qualify, regardless of when you purchased it or signed a contract for the work.
What You Can Still Claim for a 2025 Installation
For heat pumps placed in service during 2025, the credit equals 30 percent of your total qualified expenses, including both the purchase price and installation labor.3Internal Revenue Service. Energy Efficient Home Improvement Credit The maximum credit for heat pump equipment is $2,000 per taxpayer per year.4Internal Revenue Service. Frequently Asked Questions About Energy Efficient Home Improvements and Residential Clean Energy Property Credits – Qualifying Expenditures and Credit Amount Qualifying equipment includes electric or natural gas heat pumps used for space heating and cooling, and electric or natural gas heat pump water heaters.
The credit is nonrefundable. It reduces your federal income tax dollar-for-dollar but cannot drop your liability below zero, and any unused portion is lost. It does not carry forward, and it does not generate a refund on its own.5Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit
Labor for onsite preparation, assembly, and original installation counts toward the credit.6Internal Revenue Service. Updates to Frequently Asked Questions About the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit Financing charges, interest, origination fees, and extended warranties do not.
How the Annual Caps Stack
Section 25C has two separate annual caps. The $2,000 heat pump limit also covers heat pump water heaters and biomass stoves or boilers. A separate $1,200 cap covers other efficiency upgrades such as exterior windows, skylights, doors, insulation, and certain electrical panel work. Because the two caps are independent, a taxpayer who made qualifying improvements in both categories during 2025 could claim up to $3,200 in combined credits.4Internal Revenue Service. Frequently Asked Questions About Energy Efficient Home Improvements and Residential Clean Energy Property Credits – Qualifying Expenditures and Credit Amount
The panel-upgrade rule matters if a new heat pump forced an electrical upgrade. Panelboards, sub-panelboards, branch circuits, or feeders rated at 200 amps or more, installed to support qualifying energy equipment, fall under the $1,200 cap at up to $600 per item. So the panel work does not eat into the $2,000 heat pump ceiling.3Internal Revenue Service. Energy Efficient Home Improvement Credit
Which Homes and Taxpayers Qualified
The eligibility rules for heat pumps were more flexible than for windows, doors, and insulation, which required a principal residence you own. The heat pump credit applied to any home in the United States that you use as a residence. That includes a second home or vacation property, and renters who paid for a heat pump installation in their unit were also eligible.7Internal Revenue Service. Frequently Asked Questions About Energy Efficient Home Improvements and Residential Clean Energy Property Credits – Qualifying Residence
The credit was not available for newly constructed homes or for properties you do not personally use as a residence. A landlord who installed a heat pump in a rental unit they never occupy cannot claim it.
Efficiency Requirements and Documentation
Not every heat pump qualified. Each unit had to meet or exceed the highest efficiency tier, not counting any advanced tier, set by the Consortium for Energy Efficiency (CEE) in effect at the beginning of the calendar year of installation.8Internal Revenue Service. Frequently Asked Questions About Energy Efficient Home Improvements and Residential Clean Energy Property Credits – Energy Efficiency Requirements
You will need a manufacturer’s certification statement confirming that your specific model meets the required tier. That document includes a Qualified Manufacturer Identification Number (QMID) that you must enter on your tax form. The manufacturer or retailer should provide it. Keep it with your tax records; the IRS can request it to verify the credit.
How to Claim It on Your 2025 Return
You claim the credit on IRS Form 5695 (Residential Energy Credits) with your 2025 return.9Internal Revenue Service. About Form 5695, Residential Energy Credits Before you start, pull together the total cost (equipment plus installation labor), the date the heat pump was placed in service, and the manufacturer’s certification statement with the QMID.
On Part II of Form 5695, line 29a takes the QMID and cost of your most expensive heat pump. Additional heat pumps go on line 29b, and heat pump water heaters go on line 29c.10Internal Revenue Service. Instructions for Form 5695 (2025) The form walks you through applying the 30 percent rate and the annual caps. The calculated credit then moves to Schedule 3 of Form 1040, where it reduces your total tax.11Internal Revenue Service. Schedule 3 (Form 1040) You can file electronically or on paper. Keep the certification statement and receipts with your permanent records.
Rebate Programs That May Still Help
Two federally funded rebate programs created by the Inflation Reduction Act are still being administered through state energy offices. They pay upfront or at point of sale rather than through your tax return.
High-Efficiency Electric Home Rebate Act (HEEHRA)
HEEHRA offers rebates for heat pumps and other electric home upgrades to low- and moderate-income households, based on your household income against the area median income (AMI). Households below 80 percent of AMI can receive up to $8,000 toward a qualifying heat pump. Households between 80 and 150 percent of AMI can receive up to $4,000. Households above 150 percent of AMI are not eligible. Each state runs its own program, so availability, application steps, and remaining funds vary. Some states had launched their programs by early 2026; others were still in development.
Home Efficiency Rebates (HOMES)
HOMES funds whole-home energy retrofits rather than individual equipment purchases. A qualifying project must hit a minimum energy-savings threshold: at least 20 percent based on energy modeling, or at least 15 percent based on measured energy use.12ENERGY STAR. Home Efficiency Rebates (HOMES) Program Enhanced rebates are available for low-income households. A heat pump can be part of a qualifying retrofit, but the rebate is tied to the overall project savings rather than the heat pump itself. States administer this program too.
To check availability where you live, look up your state energy office or the ENERGY STAR rebate program directory.