An energy tax credit is a dollar-for-dollar reduction in federal income tax owed, granted to homeowners who install qualifying energy-efficient equipment. Unlike a tax deduction (which lowers taxable income), a credit directly reduces the final tax bill. A $600 credit means $600 less in taxes owed.
The most relevant program for HVAC was the Energy Efficient Home Improvement Credit under Section 25C of the Internal Revenue Code.
Section 25C: What It Covered
The Inflation Reduction Act of 2022 expanded Section 25C, raising annual limits and broadening eligibility for equipment installed from January 1, 2023 through December 31, 2025. The 119th Congress terminated the credit effective December 31, 2025. Homeowners who completed qualifying installations by that date can still claim the credit on their 2025 tax return using IRS Form 5695.
Equipment |
Credit |
Annual Cap |
Air-source heat pump |
30% of cost |
$2,000 |
Central air conditioner |
30% of cost |
$600 |
Gas furnace (97%+ AFUE) |
30% of cost |
$600 |
Insulation and air sealing |
30% of cost |
$1,200 (combined with other envelope items) |
Home energy audit |
30% of cost |
$150 |
The total annual cap across all categories was $3,200, split between a $2,000 limit for heat pump technology and a $1,200 limit for all other qualifying improvements combined.
Tax Credit vs. Rebate
A tax credit reduces what you owe the IRS when you file. A rebate is money returned to you at the point of sale or shortly after, often funded by a utility company or state program. The two can sometimes apply to the same installation, but they come from different sources and follow different rules.
The Section 25C credit was nonrefundable. If the credit exceeded the tax owed, the remaining balance could not be refunded or carried forward to the next year.
What Remains After 2025
With Section 25C and the Residential Clean Energy Credit (Section 25D) both expired, no direct federal tax credit for residential HVAC efficiency upgrades exists for 2026 installations. State and local programs, utility rebates, and manufacturer incentives continue to operate independently. Availability and amounts vary by state, utility provider, and equipment type. A full breakdown of federal and state rebates on HVAC systems covers the programs still active and how to find them by location.