Credit expired December 31, 2025 under OBBBA | Reference for 2025 returns | HEAR/HOMES rebates unaffected
Last updated: April 2026 — updated to reflect OBBBA expiration
The 25C Energy Efficient Home Improvement Credit was terminated by the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. Improvements installed on or after January 1, 2026 do not qualify for the 25C credit.
If your clients installed qualifying equipment by December 31, 2025, they can still claim the credit on their 2025 tax return (filed in 2026). The credit amounts, eligibility rules, and product standards below remain accurate for those 2025 claims.
HEAR and HOMES rebate programs are unaffected by OBBBA. They are direct rebate programs funded through DOE appropriations (not tax credits) and continue to operate through at least September 30, 2031.
This page serves as a reference for practitioners helping clients claim 25C on 2025 tax returns, and for understanding how the credit interacted with HEAR rebates when both were available. For current incentive programs in 2026, see the state HEAR tracker.
| Improvement Category | Credit Rate | Annual Cap | Key Standard |
|---|---|---|---|
| Heat pumps (air-source or geothermal) | 30% | $2,000 shared | CEE Advanced Tier / ENERGY STAR Most Efficient |
| Heat pump water heaters | 30% | $2,000 shared | ENERGY STAR, UEF ≥ 2.0 |
| Biomass stoves / boilers | 30% | $2,000 shared | Thermal efficiency ≥ 75% HHV |
| Insulation & air sealing | 30% | $1,200 | Meets IECC standard (2 years prior) |
| Exterior windows & skylights | 30% | $600 | ENERGY STAR Most Efficient |
| Exterior doors | 30% | $500 (2 doors, $250 each) | ENERGY STAR certified |
| Electrical panel upgrades | 30% | $600 | Load capacity ≥ 200 amps; installed with qualifying item |
| Home energy audits | 30% | $150 | Performed by qualified home energy auditor |
| Annual maximum total | $3,200 | $2,000 heat pump tier + $1,200 other tier |
Both 25C and HEAR can apply to the same project. Under the conservative interpretation: you claim the 25C credit only on your net cost after rebates.
| Scenario | Project Cost | HEAR Rebate | Net Cost | 25C Credit (30%, capped $2K) | Total Client Savings |
|---|---|---|---|---|---|
| Above 80% AMI, partial rebate | $12,000 | $4,000 | $8,000 | $2,000 | $6,000 (50%) |
| 50–80% AMI, larger rebate | $12,000 | $8,000 | $4,000 | $1,200 | $9,200 (77%) |
| Under 80% AMI, near-full rebate | $12,000 | $11,000 | $1,000 | $300 | $11,300 (94%) |
| No income qualification (HEAR ineligible) | $12,000 | $0 | $12,000 | $2,000 | $2,000 (17%) |
| Feature | 25C Credit | HEAR Rebate |
|---|---|---|
| Type | Federal tax credit (reduces tax owed) | State-administered rebate (reduces upfront cost) |
| Income limit | None | 150% of AMI maximum |
| When received | At tax filing (after installation) | At point of sale (before or at installation) |
| Refundable? | No — cannot exceed tax liability | Yes — direct rebate regardless of taxes |
| Who applies | Homeowner (via tax return, Form 5695) | Enrolled contractor on homeowner's behalf |
| State availability | All states (federal program) | 12 states live as of April 2026 |
| Can stack? | Yes — but HEAR reduces 25C basis | Yes — with 25C (reduces credit basis) |
Air-source heat pumps must meet CEE (Consortium for Energy Efficiency) Advanced Tier requirements or be listed as ENERGY STAR Most Efficient. Ground-source (geothermal) heat pumps must meet ENERGY STAR certification. Cold-climate ASHPs with rated capacity at 5°F must also meet CEE Advanced Tier — check the CEE directory at cee1.org for specific models.
Must be ENERGY STAR certified and have a Uniform Energy Factor (UEF) of 2.0 or higher. Most major HPWH models (Rheem, AO Smith, Bradford White) meet this standard at 50+ gallon capacity. Confirm with the ENERGY STAR product finder before quoting the credit to clients.
Materials must meet the IECC standard in effect two years before the installation date. For 2026 installations, this means the 2024 IECC (or the 2021 IECC in most states, depending on when it was adopted). The credit covers bulk insulation (batts, blown-in) and air sealing materials installed to reduce heat loss. Labor is not included — only material costs.
Panel upgrade must be installed in connection with another qualifying 25C improvement (e.g., adding a heat pump). The panel must have a rated load capacity of at least 200 amps. This requirement is significant: a client installing a heat pump and needing a panel upgrade can claim both — the panel separately (up to $600) and the heat pump (up to $2,000).
The audit must be conducted by a certified home energy auditor — specifically, a person who is certified by the Building Performance Institute (BPI) or equivalent. The $150 cap is modest, but it's straightforward: many HEAR programs also require a pre-installation energy assessment. If the client pays for a qualifying audit before the HEAR-funded upgrade, they can claim both the audit credit and the equipment credit in the same tax year.
Clients claim the 25C credit on IRS Form 5695 ("Residential Energy Credits") filed with their federal tax return. Key fields: Part II covers the Energy Efficient Home Improvement Credit. Clients need records of the installed cost and documentation that the product meets the required standard (manufacturer's certification statement — most manufacturers provide this on their website).
Practitioners are increasingly asked to help clients understand what documentation they need at install time. Best practice: provide clients with a manufacturer's certification statement for any 25C-eligible equipment at the time of installation, before they've assembled their tax documents.
Unlike HEAR, HOMES rebates are income-stratified rather than income-limited — households above 150% AMI can still receive HOMES rebates, though at lower amounts. The stacking logic is the same: HOMES rebates reduce the 25C credit basis. However, HOMES rebates are often smaller per measure and focused on whole-home savings pathways, so the credit reduction may be modest compared to HEAR.
See our full HEAR vs. HOMES comparison for the full decision framework.
The IRA Practitioner Brief covers tax credit and rebate interactions weekly. Free for Issues #1–3. Issue #5 (paid) is a complete income verification and stacking deep-dive with worked client scenarios.
No. The 25C credit applies only to the taxpayer's principal residence. Rental properties, vacation homes, and investment properties do not qualify. (Rental property improvements may be eligible for accelerated depreciation or Section 179 deductions instead.)
Then there is no 25C credit. The 25C basis is the net cost after rebates. If the rebate fully covers the project, the net cost is $0, and 30% of $0 is $0. This primarily affects very-low-income households receiving 100% HEAR rebates — for them, the front-loaded rebate is typically more valuable anyway, since many have low tax liability.
Yes — the credit resets annually. A client who installs a heat pump in 2026 can claim up to $2,000. If they install insulation in 2027, they can claim up to $1,200 in that year. There is no lifetime cap under the current law (through 2032). Coordinating installations across tax years is a legitimate planning strategy when the $2,000 heat pump tier and the $1,200 other improvements tier would otherwise be wasted in a single year.
No. The 25C credit is for improvements to existing homes. New construction does not qualify (though there are separate credits for builders of energy-efficient new homes under Section 45L).
The 25D credit covers solar panels, solar water heaters, geothermal heat pumps, small wind turbines, battery storage, and fuel cells — at 30% with no annual dollar cap. The 25C credit covers energy efficiency improvements (heat pumps, insulation, windows, etc.) with the annual per-category caps above. A geothermal heat pump can potentially qualify for either 25C or 25D — but not both for the same installation. Generally, 25D is more valuable for geothermal (no cap) than 25C ($2,000 cap).