If you’ve been considering a heat pump upgrade, you’ve probably heard about the 25C Energy Efficient Home Improvement Tax Credit. This popular incentive has helped millions of American households cut the cost of energy-efficient upgrades like heat pumps, insulation, and energy audits. However, with recent policy proposals in play, the future of the 25C tax credit has become less certain.
Let’s break down:
- What the 25C tax credit is and how it works
- The latest 2025 updates and potential changes
- Who still qualifies, and how long 25C is scheduled to last
- How MyNewHeatPump.com helps homeowners stack rebates, home energy rebates, and tax credits for maximum savings
Homeowners can take advantage of multiple financial incentives, including home energy rebates and tax credits, to reduce the cost of energy-efficient upgrades.
Dive into the facts with the experts at MyNewHeatPump so you can make informed decisions about your home upgrades.
What Is the 25C Tax Credit?
The 25C Energy Efficient Home Improvement Credit, expanded under the Inflation Reduction Act (IRA), was designed to help households afford energy-efficient improvements. The 25C credit is one of several federal income tax credits available for energy efficiency upgrades, providing homeowners with valuable incentives to make qualifying improvements.
Here’s how it works:
- Covers 30% of certain qualified expenses for eligible projects, up to a maximum annual credit of $3,200 per year
- Applies to improvements like heat pump installations, energy audits, insulation, and air sealing
- Claimed by filing IRS Form 5695 with your annual taxes
- Scheduled to run through 2032 under current law
For example, if you spent $6,000 in qualified expenses on a qualifying heat pump in 2024, you could claim a $1,800 credit on your taxes (30%). Qualified expenses include the cost of the equipment, installation, and necessary labor for eligible energy-efficient improvements.
25C Tax Credit Update 2025: What’s Changing
In May 2025, a new tax package introduced in the U.S. House of Representatives proposed repealing 25C at the end of 2025. While this proposal is not final, it has created uncertainty for homeowners planning upgrades.
Some key facts:
- The proposed repeal would shorten the program’s lifespan by 7 years (originally set to last until 2032).
- More than 2.3 million households claimed the 25C credit in 2023, averaging nearly $900 per household.
- The debate is ongoing, with industry leaders and organizations advocating for the credit to remain.
- The U.S. Senate will also review and may revise the proposal, meaning the outcome is not yet determined.
Bottom line: As of now, the 25C credit is still active for 2025. But the proposed repeal means homeowners may want to act sooner rather than later.
Can I Still Get the 25C Credit in 2025?
Yes—for now. If you install a qualifying ENERGY STAR heat pump or complete another eligible project in 2025, you can still claim the credit when you file your taxes next year.
However, there are two important caveats:
- Rebates vs. Credits: If your IRA home energy rebates cover the full cost of the project, you cannot also claim the 25C credit. The 25C credit only applies to your out-of-pocket costs, which are considered your qualified expenses. When calculating the 25C tax credit, you must subtract any home energy rebates received from the total project cost to determine your qualified expenses.
- Example 1: $12,000 heat pump project, $9,000 covered by home energy rebates → You can claim the 25C credit on the remaining $3,000, which are your qualified expenses.
- Example 2: $12,000 project, $12,000 covered by home energy rebates → No out-of-pocket expense, so no qualified expenses and no 25C credit.
- Professional Installation: DIY doesn’t count. To qualify, your project must be installed by a qualified contractor.
This is where MyNewHeatPump.com steps in. We help you braid together 25C credits, IRA rebates, and even local utility programs so you get the maximum savings possible on your home upgrades.
Energy Audits and Property Eligibility
When it comes to claiming the Energy Efficient Home Improvement Credit, understanding both property eligibility and the importance of a home energy audit is essential for maximizing your federal tax savings. A home energy audit is a professional assessment that pinpoints where your home is losing energy and highlights the most effective energy-efficient upgrades you can make. By identifying areas of energy waste—such as poor insulation, drafty exterior doors or windows, or outdated heating and cooling systems—a home energy audit sets the stage for smarter, more impactful improvements.
To qualify for the efficient home improvement credit, your audit must be performed by a certified home energy auditor. Not only does this ensure accurate recommendations, but the audit itself may also be eligible for a tax credit of up to $150. During the audit, the expert will evaluate your home’s insulation, air sealing, heating and cooling equipment (including heat pumps, heat pump water heaters, and geothermal heat pumps), and other building envelope components. This comprehensive review helps you prioritize upgrades that deliver the greatest energy and cost savings.
Property eligibility is another key factor. The 25C tax credit applies to existing homes—specifically, your primary residence and certain second homes that are not used as rental properties. Newly constructed homes and properties used solely for business purposes are not eligible. To meet the requirements, your home improvements must adhere to strict energy efficiency standards, such as those set by the Energy Star program or the National Electric Code, and must be installed according to the manufacturer’s guidelines.
Qualified energy efficiency improvements include a wide range of upgrades: installing high-efficiency heat pumps, natural gas heat pumps, heat pump water heaters, geothermal heat pumps, biomass stoves, air sealing materials, exterior doors, and exterior windows. Each of these must meet the highest efficiency tier or applicable Energy Star requirements to qualify for the tax credit. By focusing on these upgrades, homeowners can not only improve comfort and reduce energy waste but also unlock significant tax credits—up to $3,200 annually for qualified energy efficiency improvements.
In addition to the Energy Efficient Home Improvement Credit, homeowners may also benefit from other federal tax credits, such as the Residential Clean Energy Credit, which supports investments in clean energy equipment like solar panels and geothermal heat systems. To claim these credits, simply file IRS Form 5695 with your tax return and keep documentation of your qualifying expenditures.
By investing in energy-efficient home improvements and leveraging available federal tax credits, you can lower your energy bills, increase your home’s value, and contribute to a more sustainable future. Taking the time to schedule a home energy audit and ensure your property meets eligibility standards is the first step toward maximizing your energy and cost savings for years to come.
How Long Will the 25C Credit Last?
As of today, the 25C tax credit is set to last through December 31, 2032. However, if the current legislative proposal passes unchanged, it may expire as early as December 31, 2025.
Industry experts are pushing for the program to continue, citing its proven impact on energy savings, job creation, and household affordability. Until there’s an official change, homeowners should treat 2025 as a key year to take advantage of the program while it’s available.
How MyNewHeatPump Helps Maximize Your 25C Credit
Navigating tax credits and rebates isn’t simple, but we do it every day. At MyNewHeatPump.com, we help homeowners install qualifying upgrades to maximize their credits and savings. We:
- Verify eligibility for your household and zip code.
- Connect you with certified contractors who meet state and federal requirements.
- Bundle rebates and credits (federal, state, and utility) to cover the largest share of your project.
- Guide you through Form 5695 so you can claim credits on your federal income taxes and manage your tax liability, ensuring you don’t leave money on the table.
For many homeowners, this can mean saving thousands more than trying to navigate the system alone.
FAQs About the 25C Tax Credit
What energy efficient home improvements qualify for the 25C credit?
Qualifying improvements include heat pumps (including air source heat pump and natural gas heat pump), home energy audits, insulation, air sealing, and specific HVAC upgrades such as central air conditioners, oil furnaces, hot water boilers, biomass boilers, water heaters, oil water heaters, and other energy properties that meet the criteria. Qualifying property also includes systems that use gas, propane, or oil, electric or natural gas, and must meet eligible fuel and thermal efficiency rating standards. The heat pump tax credit is available for qualifying heat pumps, including air source and natural gas heat pumps. Labor costs for installation may be included for certain systems, such as heat pumps, water heaters, and boilers, but not for building envelope components like exterior doors and exterior windows. Branch circuits and other electrical upgrades may qualify if they support the installation of such a component and meet advanced-tier or higher efficiency standards. To be eligible, these systems must meet ENERGY STAR efficiency guidelines and the latest Consortium for Energy Efficiency (CEE) tiers.
Homeowners should verify efficiency ratings before purchasing, since only systems that meet these standards qualify. Partnering with MyNewHeatPump makes this process easier as we connect you with contractors who know exactly which systems check all the boxes.
Can I combine the 25C tax credit with IRA rebates for heat pump water heaters?
Yes, this is where homeowners see the biggest savings. If home energy rebates cover only part of the project, you can claim the 25C tax credit on your remaining out-of-pocket costs. However, home energy rebates must be subtracted from your qualified expenses before calculating the credit amount.
The credit covers 30% of your qualified expenses, up to $2,000 for heat pumps and $1,200 for other upgrades. Note that if your credit amount exceeds your tax liability, the excess credit cannot be carried forward to future tax years. MyNewHeatPump specializes in stacking and braiding rebates with the 25C credit to maximize savings, so you don’t leave money on the table.
How do I claim the 25C tax credit?
To claim the credit, you’ll need to confirm your system meets eligibility requirements, save all receipts and documentation for all qualifying expenditures incurred for eligible improvements, and file IRS Form 5695 with your tax return. The credit is claimed against your federal income tax for the year the improvements are completed. Most homeowners complete this during regular tax season, but it’s best to prepare your paperwork as soon as your project is done.
Our team helps homeowners navigate the entire process, from verifying efficiency to making sure the right documentation for qualifying expenditures incurred is submitted. With our guidance, claiming the credit is simple, accurate, and stress-free.
What happens if the 25C tax credit is repealed after 2025?
If the proposed repeal takes effect, only projects completed and installed before the cutoff date will be eligible. That means if you delay, you could miss out on thousands in savings.
This uncertainty is one reason why many homeowners are moving quickly in 2025 to complete their upgrades. MyNewHeatPump is helping households fast-track projects so they don’t risk losing access to the credit.
Can renters or multifamily households benefit from 25C?
Typically, the credit goes to the property owner who both pays for the qualifying upgrade and resides in the existing home as their primary or, in some cases, second residence. Other property owners, such as landlords or those who do not live in the property, are not eligible to claim the credit. However, renters can benefit indirectly through lower energy bills if their landlord installs a qualifying system.
The impact can be even greater for multifamily buildings. When combined with IRA rebates, 25C can make large-scale projects more affordable. MyNewHeatPump works with both individual homeowners and multifamily property managers to maximize incentives across multiple units.
Why You Should Act Now
The 25C tax credit update 2025 shows how quickly policies can shift. Right now, homeowners can still claim up to $3,200 per year, but the window may be closing sooner than expected.
At MyNewHeatPump.com, we braid together 25C tax credits, IRA rebates, and state-level incentives to stretch every dollar and get you the money you deserve. If you’ve been waiting for the right time to upgrade to a heat pump or tackle energy-efficient improvements, 2025 is the year to make it happen!
