Residential Tax Credits: Limits, 2025 Deadline, and Rebates

Residential tax credits are federal tax benefits that cut your income tax bill based on qualifying improvements to your home. Two main ones are on the table right now: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit, both worth 30% of qualifying costs. Both were extended through 2032 by the Inflation Reduction Act, and both were then cut short by the One Big Beautiful Bill Act signed on July 4, 2025. Neither credit is available for property placed in service after December 31, 2025.¹ Separate credits exist for homebuilders and for certain first-time buyers with a Mortgage Credit Certificate, and several states run their own programs alongside the federal ones.

The Energy Efficient Home Improvement Credit

The Section 25C credit covers 30% of the cost of qualifying energy-efficient upgrades to an existing home you live in, up to $3,200 per year with no lifetime cap.² It is nonrefundable: it can reduce your federal income tax to zero, but it cannot generate a refund on its own, and any unused amount is gone at year-end rather than carried forward.³

Two Annual Buckets Totaling $3,200

The $3,200 breaks into two independent limits. The first is $1,200 per year for general improvements: exterior doors, windows, skylights, insulation, air sealing, central air conditioners, certain furnaces and water heaters, and electrical panel upgrades. The second is $2,000 per year for heat pumps, heat pump water heaters, and biomass stoves or boilers. Because the buckets are separate, installing a heat pump and new windows in the same year can put you at the full combined $3,200.²

Inside the $1,200 bucket, specific items have their own ceilings:

Exterior doors: $250 per door, $500 total.
Windows and skylights: $600 total.
Home energy audits: $150.
Central AC, non-heat-pump water heaters, furnaces, boilers, and electrical panels: $600 each.
Insulation and air sealing: no sub-cap, but counts toward the $1,200.²

Equipment Has to Meet Efficiency Standards

Not every product on the shelf qualifies. Equipment generally must meet Energy Star certification or the Consortium for Energy Efficiency’s highest efficiency tier in effect at the start of the installation year. Heat pumps installed in 2025 must meet the “ENERGY STAR Most Efficient” standard.⁴ Insulation and air sealing materials must meet the International Energy Conservation Code standards in effect two years before installation.²

For 2025, manufacturers must register with the IRS and provide a four-character Qualified Manufacturer Identification Number (QMID) for most qualifying products, and you have to report that number on your return. Insulation and air sealing materials are exempt from the QMID requirement.³

Who Can Claim It

The 25C credit only applies to existing homes, not new construction. For building envelope items like windows, doors, and insulation, the home must be your principal residence and you must own it. HVAC equipment, water heaters, electrical panels, and home energy audits have broader eligibility and can be claimed for a second home, and even by renters, if the property is used as a residence.⁵ Landlords who do not live in the property cannot claim it. There are no income limits.²

If part of the home is used for business, the full credit is available when business use is 20% or less. Above 20%, the credit is prorated to exclude the business-use share.⁵

When Labor Counts

Installation labor is included in the qualifying cost for HVAC equipment, heat pumps, and biomass systems. Labor is excluded for building envelope items like doors, windows, and insulation, so for those you can only count the materials.²

The Residential Clean Energy Credit

The Section 25D credit covers clean energy generation and storage installed at a home. It is worth 30% of qualifying equipment costs, with no annual or lifetime dollar cap for most property types.⁶ Qualifying equipment includes:

Solar electric panels (photovoltaics).
Solar water heaters, which must be certified by the Solar Rating Certification Corporation or a comparable entity.
Small wind turbines.
Geothermal heat pumps.
Fuel cells, capped at $500 per half kilowatt of capacity.
Battery storage technology with a capacity of at least 3 kilowatt hours, for installations from 2023 onward.⁶

The statute lists battery storage as a standalone qualifying expense alongside solar and wind, and the statutory text does not require batteries to be paired with a solar installation.⁷

Two important differences from the 25C credit. First, the clean energy credit applies to both existing and newly built homes, and it covers principal residences and second homes (fuel cell property is excluded for second homes). Landlords who do not live in the property still cannot claim it. Second, unused amounts of the clean energy credit can be carried forward to reduce taxes in future years, so you are not limited to what your current-year tax bill can absorb.³

The December 31, 2025 Deadline

Both credits were originally set to run through 2032 under the Inflation Reduction Act, with the 25D credit scheduled to step down to 26% in 2033 and 22% in 2034.⁸ The One Big Beautiful Bill, Public Law 119-21, ended both credits early. Neither credit is available for property placed in service or expenditures made after December 31, 2025.¹

For the clean energy credit, what counts is the installation date, not the payment date. The IRS has clarified that if installation is completed after December 31, 2025, no credit is available even if the taxpayer paid earlier.¹ Solar and battery projects that involve permitting, ordering, and inspection windows are the ones most exposed to that timing rule.

How to Claim the Credits

Both credits go on IRS Form 5695, Residential Energy Credits, filed with your federal return for the year the property was placed in service. Part I is the Residential Clean Energy Credit (solar, wind, geothermal, batteries, fuel cells). Part II is the Energy Efficient Home Improvement Credit (windows, doors, insulation, HVAC, heat pumps, audits).⁹

Keep manufacturer certifications and receipts in your records, but do not attach them to the return. When joint occupants share the cost of an improvement, each person files their own Form 5695 and calculates a share of the credit based on what they actually paid. The IRS issued a correction to the 2025 Form 5695 instructions on this joint occupancy calculation in January 2026, so if you are in that situation, check the corrected version.¹⁰

How Rebates and Utility Subsidies Reduce the Credit

A rebate, subsidy, or other incentive generally reduces the qualifying expense used to calculate the credit. Public utility subsidies for the purchase or installation of clean energy property always reduce the basis, regardless of whether the check goes to you or straight to your contractor.²

The federal HOMES and HEAR rebate programs created by the Inflation Reduction Act follow the same logic. Treasury guidance treats those rebates as a reduction in purchase price rather than as taxable income. If you receive a HEAR rebate for a specific appliance, the credit is calculated on the cost after subtracting the rebate. For HOMES, where a single rebate can cover multiple measures, the rebate is allocated proportionately across the upgrades based on their share of total project cost. If a rebate covers the entire cost of an item, no credit is available for that item.¹¹

HOMES rebates run from $2,000 to $16,000 depending on energy savings and household income, and HEAR provides point-of-sale rebates of up to $14,000 for low- and moderate-income households on eligible appliances.¹² Whether either is up and running where you live depends on your state. As of mid-2025, 12 states and the District of Columbia had launched at least one program; Michigan, Wisconsin, Georgia, Indiana, North Carolina, and D.C. had both fully operational, while New Mexico, Rhode Island, and Arizona had launched HEAR only.¹³

Related Credits Around the Edges

New Construction: The Section 45L Builder Credit

Because 25C is closed to new construction, the tax code puts the incentive on the builder instead. Section 45L provides a credit to eligible contractors who construct or substantially reconstruct qualified new energy-efficient homes, for homes acquired after December 31, 2022, and before July 1, 2026.¹⁴¹⁵¹⁶ The credit is claimed on Form 8908.

Mortgage Credit Certificates for First-Time Buyers

Mortgage Credit Certificates are administered by state and local Housing Finance Agencies and let qualifying first-time homebuyers convert a portion of their annual mortgage interest into a dollar-for-dollar federal tax credit worth up to $2,000 per year for the life of the loan. The credit percentage is set by the issuing agency somewhere between 10% and 50%.¹⁷ Some state MCC programs have their own sunset dates, so check with your state agency before counting on one.

There is no active federal first-time homebuyer tax credit at present. The last one expired for purchases made after May 1, 2010, though some taxpayers who claimed the 2008 version may still be making repayments through 2025.¹⁸

State Programs

Several states run their own residential credits and property tax benefits that stack with the federal ones. California excludes qualifying solar energy systems from property tax reassessment, covering solar photovoltaics, solar water and space heating, and lithium-ion battery storage, with a January 1, 2027 sunset. Under legislation enacted in October 2025, systems installed before that date keep the exclusion until a later change in ownership.¹⁹²⁰ New York offers a refundable real property tax credit for low-income residents worth up to $75 (or $375 if age 65 or older), claimed on Form IT-214, with income and rent thresholds that are strict.²¹ Maryland caps property tax based on household income for owners with combined gross income of $60,000 or less and net worth under $200,000 (excluding the home and retirement accounts), with an October 1 application deadline each year.²² Your state’s energy office and department of revenue are the places to check for what applies where you live.

1
IRS. FAQs for Modification of Sections 25C, 25D Under Public Law 119-21
2
IRS. Energy Efficient Home Improvement Credit
3
ENERGY STAR. Federal Tax Credits
4
ENERGY STAR. Air Source Heat Pumps
5
IRS. Energy Efficient Home Improvement Credit – Qualifying Residence
6
IRS. Residential Clean Energy Credit
7
Cornell Law Institute. 26 U.S. Code § 25D
8
U.S. House of Representatives. IRA Energy Tax Benefits
9
IRS. Instructions for Form 5695
10
IRS. Correction to the 2025 Instructions for Form 5695
11
U.S. Department of the Treasury. Coordinating DOE Home Energy Rebates With Energy Efficient Home Improvement Tax Credits
12
South Carolina Energy Office. Rebates
13
Utility Dive. States Energy Efficiency Rebates
14
IRS. Credit for Builders of Energy Efficient Homes
15
U.S. Department of Energy. Section 45L Tax Credits – DOE Efficient New Homes
16
ENERGY STAR. 45L Tax Credit for Home Builders
17
National Council of State Housing Agencies. Mortgage Credit Certificate Program Q&A
18
TurboTax. Taking the First-Time Homebuyer Credit
19
California State Board of Equalization. Active Solar Energy System
20
DSIRE. Property Tax Exclusion for Solar Energy Systems
21
New York State Department of Taxation and Finance. Real Property Tax Credit
22
Maryland Department of Assessments and Taxation. Homeowners’ Property Tax Credit Program