HVAC Tax Credits 2026: What Expired, What Remains
Last updated: March 2026
Important Update
The federal Energy Efficient Home Improvement Credit (Section 25C) expired on December 31, 2025, under the One Big Beautiful Bill Act passed July 4, 2025. Federal tax credits are no longer available for HVAC equipment installed in 2026. If you installed qualifying equipment in 2025, you can still claim the credit on your 2025 tax return. State and utility rebates may still be available in your area.
What Incentives Am I Eligible For?
Answer a few questions to find available credits and rebates for your situation.
When was your HVAC system installed?
What Happened to the Federal HVAC Tax Credit?
The federal Energy Efficient Home Improvement Credit (Section 25C) expired on December 31, 2025. It was eliminated as part of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. HVAC equipment installed in 2026 or later does not qualify for this federal tax credit.
Section 25C was a nonrefundable tax credit, meaning it reduced your federal tax bill dollar for dollar but could not generate a refund beyond what you owed. A nonrefundable credit works like this: if you owed $1,500 in federal taxes and had a $2,000 credit, your tax bill went to $0, but you did not receive the extra $500. The credit covered 30% of the cost of qualifying energy-efficient home improvements, including HVAC equipment, insulation, windows, and doors.
The enhanced version of Section 25C was created under the Inflation Reduction Act (IRA) of 2022 and was available for equipment installed from January 1, 2023 through December 31, 2025. It represented the most generous federal HVAC incentive in history, with annual caps up to $3,200 and labor costs included in the calculation for the first time.
The OBBBA scaled back several IRA clean energy provisions as part of budget reconciliation. Sections 25C (home improvement), 25D (residential clean energy including solar and geothermal), 45L (new energy-efficient homes), and 179D (commercial buildings) were all terminated or given near-term expiration dates. This was a significant policy shift that removed billions of dollars in annual incentives for residential energy efficiency upgrades.
One critical detail that causes confusion: the IRS uses the "placed in service" date to determine eligibility. "Placed in service" means the equipment is installed, fully operational, and ready for use. If you purchased HVAC equipment in December 2025 but the installation was not completed until January 2026, you do not qualify for the credit. The installation completion date is what matters, not the purchase date or the contract signing date.
Can I Still Claim the HVAC Tax Credit for a 2025 Installation?
Yes. If your qualifying HVAC equipment was installed and placed in service on or before December 31, 2025, you can claim the Section 25C credit on your 2025 federal tax return, which you file during the 2026 tax season (typically by April 15, 2026, with extensions available to October 15, 2026).
Eligible Equipment and Credit Amounts for 2025
| Equipment | Credit Amount | Requirements |
|---|---|---|
| Air source heat pump | 30% of cost, up to $2,000 | CEE Tier 1 or higher |
| Heat pump water heater | 30% of cost, up to $2,000 | ENERGY STAR certified |
| Central air conditioner | Up to $600 | ENERGY STAR Most Efficient |
| Gas furnace | Up to $600 | ENERGY STAR, 97%+ AFUE |
| Boiler | Up to $600 | ENERGY STAR, 95%+ AFUE |
| Electrical panel upgrade | Up to $600 | To support heat pump |
| Home energy audit | Up to $150 | Certified auditor |
| Insulation and air sealing | Up to $1,200 | Meets IECC standards |
| Windows | Up to $600 | ENERGY STAR Most Efficient |
| Exterior doors | $250/door, up to $500 | ENERGY STAR certified |
The annual cap was $3,200 total, split into two subcategories: up to $2,000 for heat pumps and heat pump water heaters, plus up to $1,200 for all other qualifying improvements combined. A homeowner who installed both a heat pump and new insulation in 2025 could claim up to $3,200 in credits on a single tax return.
An important detail that many homeowners miss: under the IRA-enhanced version of Section 25C, labor and installation costs counted toward the 30% calculation. This was a change from earlier versions of the credit that only covered equipment costs. If you paid $8,000 installed for a heat pump in 2025, the 30% calculation applies to the full $8,000, not just the equipment price.
How to File for the 2025 Credit
Filing requires four steps. First, gather your documentation: an itemized invoice showing equipment cost and labor cost separately, the manufacturer certification statement or AHRI (Air-Conditioning, Heating, and Refrigeration Institute) certificate number, and proof of installation date such as the invoice date, permit completion date, or contractor-signed completion form.
Second, complete IRS Form 5695, Part II (Energy Efficient Home Improvement Credit). This form walks through the calculation and determines your credit amount. Third, transfer the credit amount from Form 5695 to your Form 1040, Schedule 3, Line 5. Fourth, keep all records for at least three years in case of an IRS audit.
Common Filing Mistakes to Avoid
The most frequent error is claiming the credit for equipment installed in 2026, which does not qualify. Other mistakes include not having the manufacturer certification number (your contractor should provide this, or you can look up the AHRI certificate on ahridirectory.org), forgetting that the credit is nonrefundable and cannot exceed your tax liability, claiming it for a rental property or second home (the credit is only for your primary residence), and not including labor costs in the 30% calculation.
What HVAC Incentives Are Available in 2026?
With the federal tax credit gone, the remaining incentives for HVAC upgrades in 2026 come from three sources: state rebate programs, utility company incentives, and manufacturer promotions. The combined value of these programs can range from $300 to $2,000 or more depending on your location, income level, and the equipment you install.
State Rebate Programs (HOMES and HEAR)
The Inflation Reduction Act funded two major state-level rebate programs that operate independently of Section 25C and continue to be available in 2026: the Home Energy Performance-Based Whole-House Rebates (HOMES) program and the Home Electrification and Appliance Rebates (HEAR) program.
HOMES rebates are performance-based, meaning the rebate amount depends on the energy savings your upgrade achieves, verified through energy modeling or measured results. Rebates range from $2,000 to $8,000 depending on income level and the percentage of energy savings. The more energy you save, the larger the rebate. These are administered at the state level, and rollout timelines vary. Some states launched in 2024 and 2025, while others are still setting up their programs in 2026.
HEAR rebates target low-to-moderate income households (those earning less than 150% of area median income) and provide point-of-sale discounts rather than tax credits. This means the savings are applied at the time of purchase, not when you file your taxes months later. HEAR covers up to $8,000 for a heat pump, $4,000 for an electrical panel upgrade, and $1,600 for insulation and air sealing.
Program availability varies dramatically by state. We cannot provide a comprehensive state-by-state list because programs are launching and changing throughout 2026. Check the Database of State Incentives for Renewables and Efficiency (DSIRE) at dsireusa.org, or contact your state energy office directly for current availability. For a full overview of HVAC costs that these rebates can offset, see our comprehensive cost guide.
Utility Company Incentives
Many electric and gas utility companies offer their own rebate programs for high-efficiency HVAC equipment, independent of any federal or state program. These rebates vary by utility and change annually, but common examples include $200 to $750 for qualifying heat pumps, $100 to $300 for qualifying central AC units, and $100 to $500 for qualifying high-efficiency furnaces.
Some utilities also offer interest-free financing programs for HVAC upgrades, allowing you to spread the cost over 12 to 60 months with no interest charges. To find your utility's current programs, call your electric and gas utility companies directly and ask about HVAC rebate programs, or check their websites under "rebates," "incentives," or "energy efficiency programs."
Manufacturer Promotions
Most major HVAC manufacturers, including Carrier, Trane, Lennox, Goodman, and Rheem, run seasonal promotions that typically offer $100 to $1,200 off qualifying systems. These promotions are available through participating dealers and often require installation by a specific date. They are most common in spring (before cooling season) and fall (before heating season), though some brands offer year-round promotions on specific product lines.
Ask your HVAC contractor about current manufacturer rebates when getting quotes. A good contractor tracks available promotions and can help you time your purchase to maximize savings.
How Much Will You Actually Save Without the Federal Tax Credit?
The expired federal tax credit was worth $600 to $2,000 depending on the equipment. That is a meaningful one-time savings. However, the energy savings from a high-efficiency system run $400 to $1,200 per year, every year, for the 15 to 20 year life of the system. The annual energy savings far outweigh the lost credit within just a few years.
Example 1: Replacing a 10 SEER AC with 16 SEER2 in Houston
For a 2,000 square foot home in Houston, SEER (Seasonal Energy Efficiency Ratio) measures how efficiently an AC converts electricity into cooling. A higher number means lower electricity bills. An older 10 SEER system from 2005 costs approximately $1,800 per year to cool, while a new 16 SEER2 system costs approximately $1,125 per year. That is $675 per year in savings, or $6,750 over 10 years. The lost tax credit of $600 represents less than one year of energy savings. See our AC installation cost guide for detailed pricing.
Example 2: Replacing a Gas Furnace with a Heat Pump in Raleigh
For a 2,000 square foot home in Raleigh, an older gas furnace running at 80% AFUE (Annual Fuel Utilization Efficiency, the percentage of fuel that becomes usable heat) costs approximately $1,200 per year to heat. A new heat pump costs approximately $750 per year. Annual savings of $450 add up to $4,500 over 10 years. Even subtracting the $2,000 lost tax credit, the net 10-year savings are $2,500.
Example 3: The Cost of Waiting for a New Tax Credit
Some homeowners consider keeping their old system and waiting for Congress to potentially create a new tax credit. Consider the math: if your old system costs $800 per year more in energy than a new one, waiting two years for potential new legislation wastes $1,600 in energy costs. Add the increased risk of emergency failure during that time, which carries a $1,000 to $2,000 premium over planned HVAC replacement, and the potential two-year cost of waiting reaches $2,600 to $3,600. That exceeds the value of any tax credit that might be created.
The Bottom Line on Efficiency Without Credits
| Scenario | Annual Savings | 10-Year Savings | Lost Credit | Net 10-Year Benefit |
|---|---|---|---|---|
| 10 SEER to 16 SEER2 AC (Houston) | $675 | $6,750 | $600 | $6,150 |
| 80% furnace to heat pump (Raleigh) | $450 | $4,500 | $2,000 | $2,500 |
| 80% to 96% furnace (Chicago) | $400 | $4,000 | $600 | $3,400 |
| 12 SEER to 18 SEER2 AC (Phoenix) | $900 | $9,000 | $600 | $8,400 |
In every scenario, the energy savings over the system's life dramatically exceed the value of the expired tax credit. The credit was a nice bonus, but it was never the primary financial justification for upgrading. Efficiency savings are.
The Complete History of HVAC Tax Credits (2006 to 2025)
Federal HVAC tax credits have appeared and disappeared multiple times over the past two decades, following political cycles rather than any consistent energy policy. Understanding this history provides context for why waiting for a new credit is a gamble.
The original Section 25C was created in 2006 with a modest $300 cap and limited scope. It was expanded under the American Recovery and Reinvestment Act (ARRA) in 2009 and 2010, with the cap raised to $1,500. From 2011 through 2021, the credit was reduced to a $500 lifetime cap, making it nearly useless for major HVAC upgrades since a single furnace installation could exhaust the entire lifetime benefit.
The Inflation Reduction Act of 2022 transformed the credit into its most generous version ever. The 30% rate, $3,200 annual cap (resetting each year), and inclusion of labor costs made it a significant financial incentive for the first time. This enhanced version was available from 2023 through 2025.
The One Big Beautiful Bill Act, signed on July 4, 2025, terminated Section 25C effective December 31, 2025. This was part of a broader rollback of IRA clean energy provisions during budget reconciliation. As of March 2026, no replacement legislation has been introduced in Congress.
The pattern is clear: credits come and go. Homeowners who made purchasing decisions based on credit availability during the 2023 to 2025 window benefited significantly. Those who waited often missed the window entirely. The lesson is to make HVAC decisions based on the economics of energy savings and system condition, not on the hope of a future tax credit that may never materialize.
What This Means for Your HVAC Purchase Decision in 2026
The absence of a federal tax credit changes the upfront cost calculation but does not change the fundamental economics of HVAC replacement. Here is practical guidance for homeowners making decisions in 2026.
Do not wait for a tax credit that may not come. History shows that credits appear and disappear based on political cycles, and there is no guarantee that a new incentive will be created in any specific timeframe. Waiting years for a potential $600 to $2,000 credit while paying $800 or more per year in excess energy costs is poor financial planning.
Focus on total cost of ownership rather than sticker price alone. The purchase price is one number. The 10 to 15 year energy cost is a much larger number. A system that costs $1,000 more upfront but saves $500 per year in energy is cheaper within two years and saves thousands over its lifetime. Our SEER rating guide explains efficiency tradeoffs in detail.
Get quotes now, especially during spring and fall. HVAC companies are less busy during shoulder seasons and more willing to offer competitive pricing. Emergency replacements during peak summer or winter cost $1,000 to $2,000 more than planned replacements. Use our free age decoder to check your current system's age and plan accordingly.
Stack the incentives that remain available. Even without the federal credit, combining a utility rebate ($200 to $750), a manufacturer promotion ($100 to $500), and off-season pricing can reduce your total cost by $500 to $2,000. Ask your contractor and utility company about every available program.
Higher efficiency still pays back, especially in extreme climates. A 16 SEER2 system costs $1,500 to $2,500 more than a 14 SEER2 baseline. In hot climates like Houston, Phoenix, or Dallas, that premium pays back in three to five years through energy savings alone, with no tax credit needed. In colder climates like Chicago or Minneapolis, the payback comes primarily from heating efficiency (AFUE rating) rather than cooling efficiency.
How to Find State and Utility Rebates in Your Area
Finding available incentives requires checking multiple sources. No single database captures every program, and availability changes throughout the year as budgets are allocated and exhausted.
Start by visiting dsireusa.org and entering your zip code. The Database of State Incentives for Renewables and Efficiency (DSIRE) is the most comprehensive database of energy incentive programs in the United States and lists federal, state, utility, and local programs in one place.
Next, call your electric utility company and ask specifically about current HVAC rebate programs. Utility websites often bury rebate information under multiple layers of navigation, and calling directly is faster and more reliable. If you have gas service from a separate company, call them as well, since gas utilities often have separate furnace and boiler rebate programs.
Ask your HVAC contractor what rebates they are aware of. Good contractors track available incentives as part of their sales process and can often handle the rebate paperwork for you. If a contractor does not mention rebates, ask directly.
Check your state energy office website for any state-funded programs, and specifically ask about HOMES and HEAR program availability in your state. These IRA-funded programs continue to operate and are being rolled out on varying timelines across the country.
Finally, check with your local government. Some cities and counties offer additional incentives for energy-efficient home improvements that are separate from state and utility programs. These are less common but can be significant where available.
Frequently Asked Questions
Is there a federal HVAC tax credit in 2026?
No. The federal Energy Efficient Home Improvement Credit (Section 25C) expired on December 31, 2025. HVAC equipment installed in 2026 does not qualify for a federal tax credit. State and utility rebates may still be available in your area.
When did the HVAC tax credit expire?
Section 25C expired on December 31, 2025. It was terminated by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. Equipment must have been installed on or before that date to qualify.
Why was the HVAC tax credit eliminated?
Congress eliminated Section 25C as part of the One Big Beautiful Bill Act, which scaled back clean energy provisions from the Inflation Reduction Act during budget reconciliation. Multiple energy-related tax credits were terminated or given near-term expiration dates.
Can I still claim the tax credit for a 2025 installation?
Yes. If your qualifying equipment was installed and placed in service on or before December 31, 2025, you can claim the credit on your 2025 tax return using IRS Form 5695. The installation date determines eligibility.
How do I file for the 2025 HVAC tax credit?
Complete IRS Form 5695, Part II, then transfer the credit to Form 1040, Schedule 3, Line 5. You need an itemized invoice, manufacturer certification or AHRI certificate number, and proof of installation date.
What form do I use to claim the HVAC tax credit?
Use IRS Form 5695 (Residential Energy Credits), Part II. This form calculates your credit amount based on equipment type and cost, then transfers it to your standard tax return.
What is IRS Form 5695?
IRS Form 5695 is the Residential Energy Credits form. Part I covers residential clean energy credits like solar. Part II covers the Energy Efficient Home Improvement Credit (Section 25C) for HVAC equipment, insulation, windows, and doors.
Will the HVAC tax credit come back?
There is no way to predict this with certainty. Congress has created and eliminated HVAC credits multiple times since 2006. As of March 2026, no replacement legislation has been introduced. Waiting for a potential future credit while paying excess energy costs on an old system is rarely a sound financial decision.
What is the difference between a tax credit and a tax deduction?
A tax credit reduces your tax bill dollar for dollar. A $2,000 credit means you owe $2,000 less. A tax deduction reduces your taxable income, saving you the deduction amount multiplied by your tax rate. A $2,000 deduction in the 22% bracket saves only $440. Credits are far more valuable.
What is the difference between a tax credit and a rebate?
A tax credit reduces your federal tax bill when you file your return, so the savings appear months later. A rebate is a direct discount or refund, often applied at the point of sale or shortly after purchase. Rebates provide more immediate savings.
Are state HVAC rebates still available in 2026?
Yes. Many states offer HVAC rebates through the IRA-funded HOMES and HEAR programs, and many utilities offer independent rebates. Availability varies by location. Contact your state energy office and utility company for current programs.
What is the HOMES rebate program?
The Home Energy Performance-Based Whole-House Rebates program provides rebates of $2,000 to $8,000 based on verified energy savings from home upgrades. It is funded by the IRA and administered at the state level, with varying rollout timelines.
What is the HEAR rebate program?
The Home Electrification and Appliance Rebates program provides point-of-sale discounts for heat pumps (up to $8,000), electrical panels (up to $4,000), and insulation (up to $1,600). It targets households earning less than 150% of area median income.
Do I qualify for income-based HVAC rebates?
HEAR rebates are available to households earning less than 150% of the area median income. HOMES rebates have different tiers with higher rebates for lower-income households. Check with your state energy office to determine eligibility.
Is it still worth buying a high-efficiency system without the tax credit?
Yes. The credit was a one-time savings of $600 to $2,000. A high-efficiency system saves $400 to $1,200 per year for 15 or more years. The energy savings over the system's life far exceed the lost credit value in every climate.
What manufacturer rebates are available for HVAC in 2026?
Most major brands run seasonal promotions of $100 to $1,200 off qualifying systems through participating dealers. These change throughout the year. Ask your HVAC contractor about current manufacturer promotions when getting quotes.
How much does a new HVAC system cost in 2026?
Most homeowners pay $5,000 to $12,000 fully installed. Central AC runs $3,500 to $7,500, gas furnaces $3,000 to $6,500, and heat pumps $4,000 to $8,000. See our complete HVAC cost guide for detailed breakdowns.
What is Section 25C?
Section 25C of the Internal Revenue Code was the Energy Efficient Home Improvement Credit. It provided a nonrefundable tax credit of 30% of the cost of qualifying energy-efficient improvements to a primary residence. It was active from 2023 through 2025 under the IRA.
What was the One Big Beautiful Bill?
The One Big Beautiful Bill Act (OBBBA) was a budget reconciliation bill signed on July 4, 2025. It terminated several IRA clean energy tax credits including Section 25C and 25D effective December 31, 2025, among other tax and spending provisions.
Can I claim the credit if I bought equipment in 2025 but installed it in 2026?
No. The IRS uses the "placed in service" date, which is when equipment is installed, operational, and ready for use. Purchasing in 2025 but installing in 2026 does not qualify. Installation must have been completed by December 31, 2025.
