IRS: 25C Home Efficiency Tax Credits Expires in December Posted on October 20, 2025 The Internal Revenue Service (IRS) has released an update on the 25C Energy Efficient Home Improvement Credit, providing consumers with clearer guidance on what qualifies for the federal tax credit and how long it will remain available. What the 25C Credit Covers The 25C tax credit allows homeowners to claim a portion of the cost of energy-efficient home upgrades — including HVAC systems, heat pumps, water heaters, insulation, windows, and doors. Eligible improvements allow homeowners to recoup up to 30% of their qualified expenses, with annual limits varying by equipment type. For example: Up to $600 for qualified central AC, furnaces, or water heaters Up to $2,000 for qualified heat pumps or heat pump water heaters Maximum of $3,200 per year for combined eligible home improvements The 25C credit resets each year, so while annual spending limits apply, homeowners can claim credits for qualifying improvements made for the next year. IRS Update on 25C The federal tax credit was originally established in 2005. It was later extended to 2032 by the 2022 Inflation Reduction Act. However, the One Big Beautiful Bill Act of 2025 repealed the 25C tax credit (See our previous coverage of the repeal). According to updated guidance from the IRS, this means the tax credits are only eligible until the end of the year, instead of the original 2032 deadline. The improvement must be done to the homeowner’s primary residence, defined as the place where they reside for the majority of the year. The residence must be in the United States, and it should be an existing residence that is being improved instead of a new home. Impact for Consumers The IRS clarification means that: The 25C tax credit will no longer apply in 2026. Eligible tax credits can be claimed only for qualifying equipment installed and put into service before the end of the year, or December 31st, 2025. This means that if you are considering an upgrade (energy efficient HVAC, water heater, etc) or home improvement that falls under the provisions, now is the best time to do so. The appliance or home upgrade must be installed and used before January 1, 2026. What You Should Do Check product eligibility Not all HVAC systems qualify. The model must be in the list of ENERGYSTAR approved units. Keep detailed records Save purchase receipts, installation invoices, and manufacturer certification statements. Consult a tax professional Credits vary depending on the appliance or home improvement. A tax accountant can help you navigate the IRS rules and fill out Form 5695 (Residential Energy Credits). Act before year-end Credits apply for upgrades and improvements placed in service until 2025 only. Bottom Line If you are considering an energy efficient home upgrade, whether it’s an HVAC unit, or qualified structural improvements to your home, now is the time to do so to claim the tax credits before they expire. Remember that any upgrades must be installed before 2026. Feeling overwhelmed by the deadline? Call us and we can help you choose a qualified purchase for your home. Not only do you get the tax credit, you can save on utilities in the long term! Also check our related articles to get you started: A Guide to Our Most Energy Efficient Heaters Energy Efficient AC Units: What to Look for Hot Water Heater Efficiency Guide Mickey Luongo Mickey is the resident heating and air conditioning expert with over 15 years of experience in the industry.
