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25C Active · IRS Form 5695 (Part II)

Energy Efficient Home Improvement Credit (2026)

The federal Section 25C Energy Efficient Home Improvement Credit refunds 30% of qualifying home upgrades — up to $3,200 per year — when you file your taxes. The annual limit splits into a $1,200 cap for envelope and HVAC upgrades plus a separate $2,000 cap specifically for heat pumps, heat pump water heaters, and biomass stoves. The cap resets every January, so spreading projects across two tax years can effectively double the available credit. The credit runs through 2032 and is non-refundable, meaning it can only zero out tax owed (carry-forward is not allowed).

What this credit covers

Annual cap is $1,200 for general efficiency upgrades + $2,000 for heat pumps, heat pump water heaters, and biomass stoves. The cap resets every tax year through 2032.

Eligibility quick check

Do I have to own the home?

You must own and use the home as your principal residence in the US. Rentals you do not live in do not qualify under 25C.

Are there income limits?

No. Unlike the IRA HEEHRA rebates, 25C has no income cap and no household-size requirement.

Does the equipment have to meet specific efficiency standards?

Yes. Heat pumps must meet the highest efficiency tier set by the Consortium for Energy Efficiency (CEE). The IRS requires a Product Identification Number (PIN) starting tax year 2025.

Can I claim 25C on a vacation home?

No. 25C is limited to your principal residence. Second homes qualify only for some 25D items (solar, geothermal).

How to claim 25C on your tax return

  1. Confirm equipment qualifies

    Get a written confirmation from your installer that the heat pump or upgrade meets the required CEE tier. Save model numbers and PINs.

  2. Save itemized receipts

    Keep contractor invoices that separate equipment, labor, and any rebates received. The credit basis is total cost minus any state or utility rebate.

  3. File IRS Form 5695 with your taxes

    Complete Part II — Energy Efficient Home Improvement Credit. Enter qualified costs by category (heat pump, insulation, windows). Form 5695 attaches to your Form 1040.

  4. Carry the credit to Form 1040

    The 25C credit flows from Form 5695 line 32 to Schedule 3 line 5a, and from there to your Form 1040.

  5. Keep records for at least 3 years

    The IRS can audit the credit for up to 3 years from filing. Retain receipts, AHRI certificates, and PINs.

Stacking with state and utility programs

25C stacks freely with state, county, city, and utility rebates. State and utility rebates reduce the federal cost basis, but the math almost always still favors stacking. 25C cannot be combined with HEEHRA on the same item — choose whichever delivers more (HEEHRA wins for income-qualified households).

Frequently asked questions

Can I claim 25C every year? +
Yes. The annual caps reset each January 1. Many homeowners claim 25C three or four years in a row by spreading projects (heat pump year 1, insulation year 2, windows year 3).
Does 25C stack with state rebates? +
Yes, but the state rebate reduces the cost basis used to calculate the federal credit. Example: $10,000 heat pump minus $2,000 state rebate equals $8,000 basis, and 30% of $8,000 is $2,400 — capped at $2,000.
What is the 25C heat pump PIN requirement? +
Starting tax year 2025, the IRS requires a Qualified Product Identification Number (PIN) on Form 5695 for heat pumps and heat pump water heaters. Manufacturers provide the PIN with qualifying equipment.
Are DIY installations eligible? +
Materials are eligible. Labor for insulation, air sealing, windows, and doors is eligible. Labor for HVAC equipment must be performed by a contractor and is included.
Does 25C cover solar or batteries? +
No. Solar, batteries, and geothermal go under Section 25D — a separate, uncapped 30% credit.
Can renters claim 25C? +
No. Only the homeowner of the principal residence can claim 25C.
Does the home energy audit credit stack? +
Yes. The $150 home energy audit credit is part of the $1,200 general cap but does not reduce the heat pump $2,000 sub-cap.
Is the credit refundable? +
No. 25C can only reduce tax owed to zero. Excess credit is forfeited — no carry-forward to future years.
Can the credit be transferred to my installer? +
No. 25C must be claimed by the homeowner on their own tax return. (30D EV credit is the only one transferable to a dealer.)
What if I bought the heat pump in 2025 but installed in 2026? +
The credit is claimed in the year the equipment is "placed in service" — meaning installed and operational — not the year of purchase.

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