By Anne Fonda
The Energy Efficient Home Improvement Credit (25C) is a federal tax credit that helps homeowners make upgrades to their homes that improve overall energy efficiency and deliver long-term energy savings.
Until December 31, 2022, the Energy Efficient Home Improvement Credit had a lifetime limit of $500. The Inflation Reduction Act of 2022 (IRA) amended the tax code to raise the yearly limit to $3,200 with qualifying heat pump technology or $1,200 without heat pump technology.
The IRA also lifted the lifetime limit and extended the tax credit program through December 31, 2032. Different energy-efficient upgrades have different tax credit amounts attached to them.
To be eligible for these tax credits, the improvements must be made to a qualifying existing home. Homeowners are eligible for all the credits, and renters are eligible for certain credits only. New construction and landlords do not qualify. Any upgrades must meet energy efficiency standards as well as IRS requirements to claim the credit(s).
The tax credit for heat pump technology, which includes an air source heat pump for heating and cooling as well as a heat pump water heater, is $2,000.
While electric heat pumps have a much larger tax credit, you can still claim a $600 tax credit on qualifying air conditioners and furnaces, with a maximum of $1,200 for a matched system. Furnaces and boilers must meet certain requirements and can burn natural gas, propane, or oil. Visit our Savings and Offers page to see what tax credits and rebates are available.
Other energy-efficient upgrades may be eligible for the tax credit if they meet program requirements. These items cannot be combined for a tax credit of more than $1200 total in a year.
This includes:
So, for instance, you could tackle improving the air sealing and insulation in your house one year and claim up to $1,200, but you couldn’t claim a credit on any other energy-efficient home improvement that year. Then, the next year, you could claim a total credit of $1,200 if you replaced windows and doors with qualified materials.
We recommend that before spending any money on a project, get the home energy audit done. Before buying any materials with the expectation of claiming the tax credit, ensure that they meet the program requirements for that upgrade.
To claim the energy-efficient home improvement credit when you file your tax return, you will need to fill out IRS tax form 5695, Residential Energy Credits. The credit is nonrefundable, so you can’t get back more in tax credits than you owe in taxes. You also cannot apply any excess credit to future tax years.
For tax questions, consult with a tax professional.
If you’re in the market for a new HVAC system, work with your local Trane dealer to find the system that’s right for you and qualifies for federal tax credits, and potentially, heat pump rebates.
Anne Fonda, Content Writer
A Content Writer with Trane Technologies, Anne Fonda researches topics and writes for Trane® and associated residential HVAC brands. She works in collaboration with Trane Technologies subject matter experts, offering easy-to-understand, informative content on complex topics. Her goal is to help consumers make informed decisions on the products and services they need.
She has written for HVAC and other service provider websites for over 16 years. Before transitioning to web content writing, Anne had a 14-year stint as an award-winning journalist. She graduated cum laude from the University of Missouri-Columbia School of Journalism.
When she’s not working, Anne enjoys playing word games, reading, gardening, spending time with family, and visiting gardens and museums.
Expert review by Josef Hejda, Electrification Commercialization Leader
Energy tax credits are refunds and rebates offered to homeowners who have made commitments to energy efficiency. Conditions apply.
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