Federal 25C Tax Credit for HVAC: The 2026 Guide

What the 25C credit actually covers

Section 25C of the tax code — officially the Energy Efficient Home Improvement Credit — lets homeowners claim 30% of the cost of qualifying energy-efficient equipment as a credit on their federal income tax return. For HVAC, the credit applies to qualifying heat pumps, heat pump water heaters, and certain high-efficiency central air conditioners and furnaces. There's no income limit, and unlike HEEHRA or a utility rebate, it isn't paid at the point of sale — you claim it when you file, using IRS Form 5695.

2026 credit amounts and caps

• Qualifying heat pumps and heat pump water heaters — 30% of cost, up to $2,000 per year, in its own separate cap
• High-efficiency central AC and gas furnaces — 30% of cost, counted toward a separate $1,200 annual cap that also includes insulation, doors, and windows
• Home energy audit — 30% of the audit cost, up to $150, also counted under the $1,200 cap

Because the heat pump cap is separate from the $1,200 general cap, a homeowner installing a qualifying heat pump plus a home energy audit in the same year can claim up to $2,150 total. The credit resets every tax year, so a multi-phase project (say, a heat pump this year and window replacements next year) can claim the maximum both years rather than being capped once for the whole project.

Which equipment qualifies

• Ducted and ductless heat pumps must meet the highest efficiency tier published by the Consortium for Energy Efficiency (CEE) that's in effect for the year installed
• Central air conditioners and furnaces must meet ENERGY STAR's most efficient certification for the applicable region
• Equipment must be installed in an existing home that's your primary or secondary residence — rental-only properties don't qualify
• Keep the manufacturer's Product Identification Number (PIN) and a copy of the AHRI certificate; your tax preparer will need both to file Form 5695

Stacking the 25C credit with other 2026 incentives

The 25C credit is designed to stack on top of state and utility rebates rather than replace them:

• Federal 25C tax credit — 30% of cost, up to $2,000, claimed at tax time
• TECH Clean California — $1,000–$3,000+ on qualifying heat pumps (no income limit)
• LADWP or SCE utility rebate — several hundred to $2,000/ton, depending on your electric provider
• HEEHRA — up to $8,000 on a heat pump for income-qualified households

Because the state and utility incentives reduce your invoice up front and the 25C credit comes back later at tax time, a typical homeowner sees the point-of-sale savings first, then an additional $2,000 back when they file. See our full rebates page for the current combined totals across all five programs.

How we help

We can't file your taxes, but we make sure you have everything your preparer needs: an itemized invoice, the manufacturer's AHRI certificate showing the qualifying efficiency rating, and the equipment's Product Identification Number. We flag which of our proposed systems clear the 25C efficiency bar before you buy, so there's no surprise at tax time.