Federal

How to Claim the 25C Energy Efficient Home Improvement Credit (2026)

To claim the federal 25C Energy Efficient Home Improvement Credit, you file IRS Form 5695 Part II with your tax return for the year the equipment was placed in service. Heat pumps qualify for 30% of cost up to $2,000 per year, on top of a separate $1,200 annual cap covering insulation, air sealing, windows, doors, and air conditioners. Starting tax year 2025 the IRS requires a Qualified Product Identification Number (PIN) for heat pumps and heat pump water heaters — confirm the PIN with your installer at install. The credit is non-refundable and has no carryforward, so it only offsets tax owed in the install year. Spread projects across two tax years to claim the cap twice.

Step 1: Confirm the equipment qualifies

Heat pumps must meet the highest CEE tier. Insulation must meet IECC 2021 standards. Windows must be ENERGY STAR Most Efficient. Doors must meet ENERGY STAR. Save AHRI certificates and ENERGY STAR labels.

Step 2: Get the manufacturer PIN

For heat pumps, heat pump water heaters, and biomass stoves, the manufacturer provides a Qualified Product Identification Number with the equipment. The PIN goes on Form 5695 Part II line 22a starting tax year 2025.

Step 3: Save itemized receipts

Equipment, installation labor, and any rebate received must all be documented. The credit basis is total cost minus rebates.

Step 4: Calculate the credit by category

Heat pump 30% up to $2,000. Insulation 30% up to $1,200 cap (combined with windows, doors, audit). Windows 30% up to $600 within the $1,200 cap. Doors 30% up to $250 each, $500 total within the $1,200 cap. Audit 30% up to $150 within the $1,200 cap.

Step 5: File Form 5695 Part II

Form 5695 Part II is dedicated to 25C. Enter total qualified costs, calculate by category, and the form rolls the result to Schedule 3 line 5a, then to Form 1040.

Step 6: Keep records 3 years minimum

IRS audit window for the credit is 3 years from filing. Keep contractor invoices, AHRI certificates, ENERGY STAR labels, manufacturer PINs.

Frequently asked questions

Can I claim 25C every year? +

Yes. Caps reset January 1 each year through 2032. Spreading projects over multiple years is a common stacking strategy.

Can I claim 25C and HEEHRA together? +

Not on the same item. Choose the better deal. HEEHRA wins for income-qualified households (≤150% AMI). 25C wins for higher-income.

Does state rebate reduce the 25C basis? +

Yes. Subtract any state or utility rebate from cost before applying 30%.

What if I do the install but pay in a different tax year? +

The credit is claimed in the year the equipment is placed in service (operational), not paid for.

Carryforward? +

No. 25C is non-refundable with no carryforward. Excess credit is forfeited.