HVAC Tax Credits Guide

25C pays 30 percent of project cost including installation labor, subject to per category caps. Heat pumps enjoy their own $2,000 cap separate from the $1,200 cap covering other improvements, so a combined project can capture up to $3,200 in a single tax year.

The credit is nonrefundable and does not carry forward: it offsets federal income tax you owe that year, so a household owing $800 in tax collects at most $800 regardless of project size. Timing a project into a year with sufficient tax liability matters for retirees and low income households.

Efficiency tiers are specific and regional, following CEE listings rather than round numbers, and a 15.2 SEER2 builder grade system does not qualify. Since 2025, equipment must also come from a manufacturer with a registered PIN that you report on your return. Ask your contractor in writing to confirm the exact model numbers qualify for 25C and to provide the manufacturer certificate and PIN, and keep the AHRI certificate with your tax records.

File IRS Form 5695 with the tax return for the year the equipment was placed in service, not the year you paid the deposit. Enter costs including labor, apply the caps per category, and record the manufacturer PIN where required. The annual caps reset every January, which rewards phasing: a furnace this December and a heat pump in January captures both years' limits. State tax credits, where offered, stack on top and follow their own forms; your state energy office lists them.