The federal Section 25C Energy Efficient Home Improvement Credit applies only to equipment placed in service on or before December 31, 2025. It was terminated by the One Big Beautiful Bill Act (OBBBA, Public Law 119-21, signed July 4, 2025) for any equipment placed in service after that date. Heat pumps installed in 2026 do not qualify for the 25C credit.
If you completed your installation by Dec 31, 2025, you can still claim the credit on your 2025 federal return (IRS Form 5695) in early 2026. The controlling event is "placed in service" — meaning the install is complete and the system is operational. Equipment purchased in 2025 but installed in 2026 does not qualify.
For new installs in 2026, the active federal pathways are the IRA-funded HOMES and HEAR/HEEHRA rebate programs (separately appropriated, survived OBBBA, rolling out state-by-state), plus state and utility rebates that often stack on top.
(Sources: IRS Energy Efficient Home Improvement Credit page; IRS OBBB FAQ; ENERGY STAR federal tax credits page; Congress.gov CRS IN12611. Section 25D (Residential Clean Energy Credit) — covering geothermal heat pumps, solar, and batteries — was also terminated by OBBBA for property placed in service after Dec 31, 2025. No federal 25D credit is available for 2026 geothermal installs; carryforward of unused pre-2026 25D credit is still allowed.)
What Changed: The OBBBA Termination
The Section 25C credit was originally extended through 2032 by the Inflation Reduction Act of 2022 (IRA), at a 30% rate capped at $2,000 for heat pumps. The OBBBA, signed by the President on July 4, 2025, accelerated the termination of Section 25C to December 31, 2025.
Concretely:
- Heat pumps placed in service on or before Dec 31, 2025 are still eligible for the credit, claimed on the 2025 tax return filed in early 2026.
- Heat pumps placed in service after Dec 31, 2025 are not eligible for any federal 25C credit, regardless of when the equipment was purchased.
"Placed in service" means the installation is complete and the equipment is operational. Equipment delivered in 2025 but not installed until January 2026 does not qualify.
If You Installed By Dec 31, 2025
You can claim the credit on your 2025 federal tax return:
- Credit amount: 30% of total installed cost (equipment + labor), capped at $2,000 for heat pumps.
- Annual, not lifetime cap. If you installed a heat pump in 2024 and another in 2025, you can claim up to $2,000 each year on the respective returns.
- Primary residence only. Rental properties and second homes do not qualify.
- Nonrefundable. Reduces tax liability to zero but does not generate a refund.
- Manufacturer Product Identification Number (PIN) required for 2025 claims.
File via IRS Form 5695 (Residential Energy Credits), Part II. Keep the contractor invoice, manufacturer certification statement, and proof of payment.
HOMES and HEAR/HEEHRA Rebates (Still Active in 2026)
The IRA established two rebate programs separately from the 25C tax credit. These were separately appropriated and survived the OBBBA. They continue to roll out state by state in 2026.
HEAR (High-Efficiency Electric Home Rebate, formerly HEEHRA) is income-qualified:
| Income Level | Definition | Heat Pump Rebate | Electrical Panel Rebate | Total Potential |
|---|---|---|---|---|
| Low income | ≤80% of Area Median Income | Up to $8,000 | Up to $4,000 | $12,000+ |
| Moderate income | 80–150% of AMI | Up to $4,000 | Up to $2,000 | $6,000+ |
| Above moderate | >150% of AMI | Not eligible | Not eligible | $0 via HEAR |
HOMES (Home Owner Managing Energy Savings) is not income-qualified — open to all homeowners, with rebate amounts based on measured energy savings from a whole-home retrofit.
To check whether your state has launched its HEAR/HEEHRA or HOMES program in 2026, search the DSIRE database (dsireusa.org) for your state and ZIP code, or contact your state energy office.
State and Utility Rebates
State and utility rebates often stack on top of HOMES/HEAR (where allowed by program rules). The amounts and eligibility vary widely by state; verify current amounts with your state energy office or utility.
| State / Program | Rebate Amount | Key Requirements | Stacks with HEAR/HOMES? |
|---|---|---|---|
| Massachusetts (Mass Save) | $10,000–$16,000 | Whole-home conversion, income-based | Check program rules |
| New York (NYSERDA) | $1,000–$14,500 | Clean Heat Program, income-based | Check program rules |
| Maine (Efficiency Maine) | $2,000–$4,000 | ENERGY STAR certified | Check program rules |
| Vermont (Efficiency Vermont) | $2,000–$4,500 | Cold-climate ASHP | Check program rules |
| Colorado (Xcel Energy) | $2,500–$5,000 | Cold climate rated | Check program rules |
| California (TECH Clean) | $3,000–$5,500 | Replace gas furnace | Check program rules |
| Oregon (Energy Trust) | $1,500–$3,000 | Ducted or ductless, ENERGY STAR | Check program rules |
| Washington (PSE/SCL) | $1,500–$3,500 | ENERGY STAR, electric utility customer | Check program rules |
| Minnesota (CIP) | $500–$2,500 | Cold-climate ASHP | Check program rules |
| Connecticut (Energize CT) | $1,500–$3,000 | Air-source HP, ENERGY STAR | Check program rules |
| Illinois (ComEd/Ameren) | $500–$2,500 | ENERGY STAR qualifying | Check program rules |
| New Jersey (NJ Clean Energy) | $1,000–$4,000 | Whole-home electrification | Check program rules |
Verify current amounts. State and utility rebates change frequently and depend on program funding. Search the DSIRE database (dsireusa.org) and your utility's website before assuming a specific amount.
Geothermal (Section 25D) — Terminated for 2026 Installs
Section 25D (Residential Clean Energy Credit) historically covered geothermal heat pumps, solar, and batteries at 30% of total installed cost with no cap, with carryforward of unused credit. OBBBA terminated 25D for property placed in service after December 31, 2025 — same expiration as 25C, with the same "placed in service" trigger (no grandfather, no transition relief for deposits made in 2025 but installed in 2026). No federal 25D credit is available for 2026 geothermal installs. Carryforward survives: if you installed a qualifying 25D system on or before Dec 31, 2025 and your credit exceeded your 2025 tax liability, you can still carry the unused portion forward to future tax years per existing IRS rules. (Sources: IRS Section 25D page; IRS OBBB FAQ; Congress.gov CRS IN12611.)
How to Claim 25C on a 2025 Install
If your heat pump was placed in service on or before December 31, 2025, claim on your 2025 return:
Step 1: Keep all receipts. Save the contractor invoice, equipment specification sheet (showing model number and efficiency ratings), and proof of payment.
Step 2: Obtain the Manufacturer Certification Statement and the 17-character Product Identification Number (PIN). These are required for 2025 25C claims. Check the manufacturer's website or ask your contractor.
Step 3: File IRS Form 5695 (2025 version). Complete Part II (Residential Energy Credits). Enter the total qualifying costs, calculate 30%, and apply the $2,000 cap.
Step 4: Enter the credit on Form 1040. Transfer from Form 5695. The credit reduces tax owed dollar-for-dollar.
Common Mistakes That Cost You Money
Assuming the 25C credit is available for a 2026 install. It is not — the credit terminated for installs after Dec 31, 2025. Don't budget around it; budget around state/utility/HOMES/HEAR rebates instead.
Installing a unit that doesn't meet CEE requirements (for 2025 claims). A heat pump with SEER2 15.5 (just below the 16.0 threshold) saves you nothing on the tax credit. Always confirm the exact model meets the CEE tier on the manufacturer's certification.
Forgetting to claim on a 2024 or 2025 install. If you installed a heat pump in 2024 or 2025 and didn't claim the 25C credit, you can typically file an amended return (IRS Form 1040-X) for the year of installation.
Not stacking state and utility rebates with HOMES/HEAR. State and utility programs are separate from federal rebates and often allow stacking — verify each program's rules.
Waiting too long to apply for state rebates. Many state and utility programs are funded on a first-come, first-served basis. Rebate pools can be exhausted before the program deadline. Apply within 30 days of installation.
Key Takeaways
- "Placed in service" is the controlling date — not purchase, deposit, or delivery. A heat pump paid for and delivered in December 2025 but not made operational until January 2026 gets zero 25C credit; the equipment must be installed and running by Dec 31, 2025 to qualify on the 2025 return.
- Missed claiming a 2024 or 2025 install? The 25C credit is annual, not lifetime — up to $2,000 for a 2024 install and another $2,000 for a 2025 install, on each year's separate return. If you overlooked either, file IRS Form 1040-X within three years of the original filing deadline to recover the credit.
- 2025 installs can still be claimed on the 2025 return (IRS Form 5695) in early 2026.
- HOMES and HEAR/HEEHRA rebates were separately appropriated and survived OBBBA. They're rolling out state-by-state. HEAR is income-qualified (up to $8,000 for low-income heat-pump installs); HOMES is open to all homeowners based on measured energy savings.
- State and utility rebates ($500–$16,000 in some states) often stack on top — verify each program's rules.
- Section 25D (geothermal/solar/batteries) expired for property placed in service after Dec 31, 2025 (OBBBA). Carryforward of unused pre-2026 credit still allowed. (Source: IRS 25D page.)
Frequently Asked Questions
The IRS uses the "placed in service" date as the controlling event. Equipment that was not operational by December 31, 2025 does not qualify for the 25C credit, even if it was purchased or partially installed in 2025. Talk to a tax professional for borderline cases.