Federal tax credit for heat pumps (25C)

As of October 2026, the federal Energy Efficient Home Improvement Credit (Internal Revenue Code section 25C) is not available for a heat pump installed in 2026. Public Law 119-21, signed July 4, 2025, changed the credit's end date so it does not apply to property "placed in service after December 31, 2025."^{[Source 1]} The IRS states: "The credit will not be allowed for any property placed in service after December 31, 2025."^{[Source 2]}

If your heat pump was installed and working by December 31, 2025, you can still claim the credit on your 2025 federal return with Form 5695.^{[Source 5]}

What the credit was

For property placed in service from January 1, 2023 through December 31, 2025:

Rule	Detail
Credit rate	30% of qualified expenses[Source 3]
Annual cap for heat pumps	$2,000 per year for qualified heat pumps, heat pump water heaters, biomass stoves or biomass boilers[Source 3]
Annual cap for other items	$1,200 for other energy efficient property (insulation, windows, doors, audits and similar)[Source 3]
Combined maximum	$3,200 in one year, because the two caps add together[Source 4]
Lifetime limit	None; the caps reset each year[Source 3]
Form	Form 5695, Residential Energy Credits, Part II[Source 3][Source 5]

The cap was annual, so a household could claim the credit for different projects in different years while it existed.

Which heat pumps qualified

The IRS rule was that a heat pump had to "meet or exceed the CEE highest efficiency tier, not including any advanced tier, in effect at the beginning of the year when the property is installed."^{[Source 3]} CEE is the Consortium for Energy Efficiency, which publishes efficiency tiers. ENERGY STAR translated this for 2025 installs: a qualifying unit had to be ENERGY STAR Most Efficient, through either the cold-climate path or the standard path.^{[Source 6]}

For split systems, the whole matched system counts. The IRS says "the entire system (indoor and outdoor components) must be installed and must meet the applicable CEE requirements."^{[Source 4]} In practice that means the AHRI certificate for the exact outdoor unit and indoor coil or air handler combination is the document that shows the rating.

The 2025 manufacturer ID requirement

Starting with 2025, the IRS required the taxpayer to report a Qualified Manufacturer Identification Number (QMID) for each item, and the item had to come from a manufacturer registered with the IRS.^{[Source 3]} The statute calls this a product identification number (PIN); the IRS asks taxpayers to enter the manufacturer's 4-character QMID on Form 5695.^{[Source 4][Source 5]} If you are filing a 2025 claim, ask your installer or the manufacturer for the QMID before you file.

Rebates reduce the amount you can claim

Utility rebates and federal rebates lower the cost you can claim. The IRS says "the tax credit amount must be reduced by the amount of the rebate," and it treats money from the Department of Energy's Home Energy Rebate programs as rebates for this purpose.^{[Source 4]} A utility subsidy paid to your contractor on your behalf also comes off the claimable cost.^{[Source 4]} State incentives are handled differently: you generally do not reduce the purchase price for a state incentive unless it counts as a rebate under federal tax law, though it may count as income.^{[Source 4]} Ask a tax professional how your specific state or utility payment is treated.

Timing: "placed in service"

The legal test is when the equipment was placed in service, not when you signed the contract or paid.^{[Source 1][Source 2]} ENERGY STAR describes it in consumer terms as "purchased and installed between January 1, 2023, and December 31, 2025."^{[Source 6]} A deposit paid in 2025 for a system finished in 2026 does not meet the test. The IRS gave an explicit answer for the related 25D credit (an expenditure is made "when the original installation of the item is completed"); it did not publish the same Q&A for 25C, but the statute's placed-in-service wording points to the same result.^{[Source 2]}

One inconsistency to know about: the IRS credit page describes eligible property as placed in service "before December 31, 2025," which could be read as excluding December 31 itself.^{[Source 3]} The statute and the IRS fact sheet both say the credit ends for property placed in service after December 31, 2025.^{[Source 1][Source 2]} The statute controls.

Geothermal heat pumps (25D)

The Residential Clean Energy Credit (25D), which covered geothermal heat pumps, was also ended by the same law. It does not apply to "expenditures made after December 31, 2025."^{[Source 1][Source 2]}

Is anything bringing it back?

As of October 2026, no. Bills have been introduced to restore the credit, including S.3722, the Lowering Home Energy Costs Act, introduced January 29, 2026, which would repeal the termination and restore 25C.^{[Source 7]} Its latest recorded action was referral to the Senate Committee on Finance on the day it was introduced. An introduced bill is not law. Check the IRS credit page before relying on any change.^{[Source 3]}

What still exists

State, utility and federally funded state-run rebate programs are separate from the tax credit and are covered in Heat pump rebates and incentives.