The federal Section 25C Energy Efficient Home Improvement Credit expired for property placed in service after December 31, 2025 under the OBBBA (PL 119-21, signed July 4, 2025). The credit no longer applies to 2026 installs. This page documents the pre-expiration eligibility thresholds (still useful as efficiency targets for state/utility rebates and IRA HEAR / HOMES programs, which often use the same or similar criteria). For 2026 installs, jump to the Active 2026 Pathways section below. (Sources: IRS OBBB FAQ; Congress.gov CRS IN12611.)
Through Dec 31, 2025, the federal 25C Energy Efficient Home Improvement Credit required a central air conditioner to meet ENERGY STAR Most Efficient criteria — 17.5 SEER2 or higher for split systems. Heat pumps qualifying as "high-efficiency" could earn a larger credit of up to $2,000 by meeting both SEER2 and HSPF2 thresholds. The credit covered 30% of equipment and installation cost, with annual limits of $600 for ACs and gas furnaces, or $2,000 for heat pumps.
The OBBBA repealed 25C for property placed in service after Dec 31, 2025. Here's what the credit covered (useful both for 2024/2025 amended-return claims and for understanding the efficiency thresholds that state/utility programs still use), plus the active 2026 federal pathways that replace it.
25C Tax Credit Overview (HISTORICAL — Expired Dec 31, 2025)
The Inflation Reduction Act (IRA) of 2022 extended and expanded the Energy Efficient Home Improvement Credit (Section 25C of the Internal Revenue Code) through December 31, 2032 — but the OBBBA (PL 119-21, signed July 4, 2025) repealed it early for property placed in service after Dec 31, 2025.
Key features of the credit through Dec 31, 2025:
The credit was 30% of qualified costs (equipment + installation labor). There was an annual aggregate limit of $3,200 across all qualifying improvements, with sub-limits by category. The credit was non-refundable and did not allow carryforward — meaning it reduced your tax liability for the year only, with no rollover. The credit reset every tax year through 2025, so you could have claimed it multiple years in a row for different improvements; that mechanism no longer applies to 2026+ installs.
For 2024/2025 installs that didn't claim the credit: You can typically file an amended return on IRS Form 1040-X. 25C does NOT allow carryforward of an unused credit, so the amendment is the only way to recapture the credit for prior years.
SEER2 and Efficiency Requirements (HISTORICAL — Through Dec 31, 2025)
These were the pre-expiration 25C thresholds. They no longer trigger a federal credit for 2026 installs but remain useful as efficiency targets — most state/utility rebates and the IRA HEAR / HOMES programs use the same or similar criteria.
Central Air Conditioners — Was up to $600
| Requirement (HISTORICAL) | Split System AC | Packaged AC |
|---|---|---|
| Qualifying Standard | ENERGY STAR Most Efficient | ENERGY STAR Most Efficient |
| Minimum SEER2 | 17.5 | 15.2 |
| Minimum EER2 | 12.0 | 11.0 |
| Credit Rate (pre-expiration) | 30% of total cost | 30% of total cost |
| Maximum Credit (pre-expiration) | $600/year | $600/year |
| Includes Labor | Yes | Yes |
| Status for 2026 installs | EXPIRED (OBBBA) | EXPIRED (OBBBA) |
Heat Pumps — Was up to $2,000
| Requirement (HISTORICAL) | Split System Heat Pump | Packaged Heat Pump |
|---|---|---|
| Qualifying Standard | ENERGY STAR (CEE Tier 1+) | ENERGY STAR |
| Minimum SEER2 | 16.0 | 15.2 |
| Minimum EER2 | 12.0 | 10.6 |
| Minimum HSPF2 | 9.0 | 7.8 |
| Credit Rate (pre-expiration) | 30% of total cost | 30% of total cost |
| Maximum Credit (pre-expiration) | $2,000/year | $2,000/year |
| Includes Labor | Yes | Yes |
| Status for 2026 installs | EXPIRED (OBBBA) | EXPIRED (OBBBA) |
Gas Furnaces — Was up to $600
| Requirement (HISTORICAL) | Gas Furnace | Oil Furnace |
|---|---|---|
| Qualifying Standard | ENERGY STAR Most Efficient | ENERGY STAR |
| Minimum AFUE | 97% | 87% |
| Credit Rate (pre-expiration) | 30% of total cost | 30% of total cost |
| Maximum Credit (pre-expiration) | $600/year | $600/year |
| Includes Labor | Yes | Yes |
| Status for 2026 installs | EXPIRED (OBBBA) | EXPIRED (OBBBA) |
Pre-expiration stacking (for 2024/2025 install amended-return reference): Through Dec 31, 2025, the $2,000 heat pump 25C credit was separate from and in addition to the $600 limit for ACs and furnaces — a qualifying heat pump + qualifying furnace in the same year could trigger up to $2,000 + $600 = $2,600. The total annual cap across all 25C credits was $3,200. None of this applies to 2026+ installs (credit expired).
Annual Credit Limits Breakdown
The $3,200 annual aggregate breaks down into two sub-categories:
| Sub-Category | Annual Limit | Qualifying Items |
|---|---|---|
| Heat Pumps, Heat Pump Water Heaters, Biomass Stoves | $2,000 | Air-source heat pumps, geothermal heat pumps, heat pump water heaters |
| All Other Qualified Improvements | $1,200 | Central AC ($600 cap), furnaces ($600 cap), insulation, windows ($600 cap), doors ($500 cap), energy audits ($150 cap), electrical panel upgrades ($600 cap) |
Example: Maximizing 2024/2025 credits (HISTORICAL)
For a 2025 install of a qualifying heat pump ($12,000) plus old-window replacement ($8,000):
- Heat pump credit: 30% × $12,000 = $3,600, capped at $2,000
- Window credit: 30% × $8,000 = $2,400, capped at $600
- Total 2025 credit: $2,600
For a separate 2024 install of a furnace ($6,000) and insulation ($3,000):
- Furnace credit: 30% × $6,000 = $1,800, capped at $600
- Insulation credit: 30% × $3,000 = $900 (no sub-limit beyond the $1,200 aggregate)
- Total 2024 credit: $1,200 (hits the $1,200 "other improvements" sub-cap since no heat pump was installed that year)
For 2026 installs, none of the above 25C math applies — the credit expired Dec 31, 2025 under the OBBBA.
Which AC and Heat Pump Models Qualify?
Rather than guessing, use the ENERGY STAR product finder to confirm a specific model meets the criteria. Here's a general guide by brand:
Central ACs Meeting 17.5+ SEER2
| Brand | Qualifying Model Lines | SEER2 Range | Est. Installed Cost |
|---|---|---|---|
| Carrier | Infinity 24 (24VNA4), Infinity 19VS | 19–24 SEER2 | $7,000–$12,000 |
| Trane | XV20i, XR17 | 17–22 SEER2 | $6,500–$11,000 |
| Lennox | XC21, XC25* | 19 to up to 26 | $7,000–$13,000 |
| Rheem | Prestige RA20 | 19–20 SEER2 | $6,000–$9,000 |
| Goodman/Daikin | GVXC20 | 19–20 SEER2 | $5,500–$8,500 |
| Bryant | Evolution 189CNV | 19–24 SEER2 | $7,000–$12,000 |
| American Standard | AccuComfort Platinum 20 | 18–22 SEER2 | $6,500–$11,000 |
Lennox XC25: marketed at "up to 26". Sources conflict on SEER (legacy 2018 metric) vs SEER2 (2023 M1 procedure). Central-AC certified ratings are match-dependent — verify the exact rating for your quoted indoor/outdoor combination at the AHRI Directory. Lennox now also markets the SL25KCV/SL28XCV as the current variable-capacity flagship. Also note: the federal 25C credit (which covered up to $2,000) expired for property placed in service after Dec 31, 2025 under the OBBBA. (Sources: lennox.com; IRS OBBB FAQ.)
Heat Pumps Meeting 16+ SEER2 / 9.0+ HSPF2
| Brand | Qualifying Model Lines | SEER2 | HSPF2 | Est. Installed Cost |
|---|---|---|---|---|
| Carrier | Infinity 24 HP (25VNA4) | 22–24 | 10–11 | $8,000–$14,000 |
| Trane | XV19, XV20i HP | 18–20 | 10–11 | $7,000–$12,000 |
| Lennox | XP25, XP21 | 19–24 | 10–11 | $8,000–$14,000 |
| Daikin | DZ20VC, FIT | 17–20 | 9.5–11 | $6,000–$11,000 |
| Mitsubishi | Hyper-Heat (MSZ/MXZ) | 18–22 | 10–13 | $4,000–$8,000/zone |
| Fujitsu | Halcyon XLTH | 18–22 | 10–13 | $4,000–$7,000/zone |
| Bosch | IDS 2.0 | 18–20 | 10–11 | $6,000–$10,000 |
How to Claim 25C on a 2024 or 2025 Amended Return
If you installed a qualifying heat pump, AC, or furnace in 2024 or 2025 and didn't claim 25C at the time, you can typically still recapture it via an amended return:
Step 1: Confirm eligibility for the prior-year install. Verify the specific model number met 25C criteria using the ENERGY STAR product finder or the AHRI certification directory. Get the manufacturer's certification statement.
Step 2: Keep all documentation. Save the purchase receipt, installation invoice (showing labor costs separately), manufacturer certification statement, and the model/serial number plate photo.
Step 3: Complete IRS Form 5695 for the install year. Use Part II of Form 5695 (Residential Energy Credits) to calculate the credit. Enter total qualified costs (equipment + labor) and calculate 30%, subject to the applicable cap.
Step 4: File Form 1040-X (Amended Return). Attach the corrected Form 5695. The credit flows through Schedule 3 to the amended Form 1040.
Common mistakes to avoid:
- Claiming the credit for a rental property (only applied to your primary residence)
- Trying to claim 25C for a 2026 install (credit expired Dec 31, 2025 under the OBBBA — no longer available)
- Trying to carry forward an unused pre-2026 25C credit (25C does NOT allow carryforward, unlike 25D)
- Forgetting to include labor costs (they counted toward the 30% calculation)
- Installing equipment that met ENERGY STAR but not ENERGY STAR Most Efficient criteria (the thresholds differed)
Active 2026 Pathways (After the OBBBA 25C Repeal)
For 2026 installs, the federal 25C credit no longer applies. The active federal and state/utility pathways are:
| Incentive Type | Typical Amount (2026) | Where to Find |
|---|---|---|
| Federal 25C Tax Credit | EXPIRED Dec 31, 2025 (OBBBA) | Pre-2026 installs only; file Form 1040-X for amended return |
| Federal 25D Tax Credit (geothermal/solar) | EXPIRED Dec 31, 2025 (OBBBA); carryforward of unused pre-2026 credit allowed | Pre-2026 installs only; Form 1040-X for amended return |
| IRA HEAR (formerly HEEHRA) | Up to $8,000 for heat pumps (income-qualified) | State energy office |
| IRA HOMES | Performance-based; open to all incomes | State energy office |
| State Tax Credits / Rebates | $0–$1,500 | dsireusa.org |
| Utility Rebates | $200–$2,000 | Your utility company website |
IRA HEAR — the main 2026 federal pathway for heat pumps: Income-qualified households (typically under 150% of area median income) can receive point-of-sale rebates of up to $8,000 for qualifying heat pump installations. Eligibility and availability vary by state — check your state energy office or DSIRE for current programs. IRA HOMES (open to all incomes, performance-based) is the parallel program for households above the HEAR income threshold.
Special Case: Geothermal Heat Pumps (Section 25D — also EXPIRED Dec 31, 2025)
Geothermal (ground-source) heat pumps previously qualified for the Section 25D Residential Clean Energy Credit: 30% of total system cost with no dollar cap through Dec 31, 2025. For a typical $20,000–$30,000 geothermal installation, that meant a $6,000–$9,000 credit on the install year's tax return.
The 25D credit also expired for property placed in service after Dec 31, 2025 under the OBBBA. Unlike 25C, 25D allows carryforward of an unused pre-2026 credit to future tax years — so if you have a 2024 or 2025 qualifying install with credit not fully used yet, you can roll the remainder forward.
For 2026 geothermal installs, the active federal pathway is IRA HOMES (open to all incomes, performance-based), plus state/utility geothermal-specific rebates where available.
Tax Credit vs Long-Term Savings: Total Value
To understand the full financial impact, let's look at a complete scenario:
Scenario: Replacing a 12 SEER AC with an 18 SEER2 heat pump in Charlotte, NC (2026 install)
- Old system: 12 SEER AC + 80% AFUE gas furnace, $1,800/year combined energy costs
- New system: 18 SEER2 / 10 HSPF2 heat pump, estimated $1,100/year energy costs
- Installation cost: $10,000
- Federal 25C credit: $0 (EXPIRED Dec 31, 2025 — OBBBA; this same install in 2025 would have qualified for up to $2,000)
- Duke Energy rebate: $500
- IRA HEAR (if income-qualified, up to $8,000) or HOMES (performance-based): -$0 to -$8,000
- Net cost (Duke Energy only): $9,500
- Net cost (Duke Energy + max HEAR): $1,500
- Annual savings: $700
- Simple payback (no HEAR): 13.6 years
- Simple payback (with max HEAR): 2.1 years
- 15-year net savings: $1,000–$9,000 depending on HEAR stacking
Key Takeaways
- The federal Section 25C credit expired for property placed in service after Dec 31, 2025 under the OBBBA (signed July 4, 2025). The thresholds below were the credit's pre-expiration eligibility rules.
- Central ACs needed 17.5+ SEER2 to qualify for the $600 federal tax credit (25C)
- Split heat pumps also needed 12+ EER2 on top of 16 SEER2 and 9.0 HSPF2 to hit the CEE Tier 1+ standard; packaged units cleared a lower bar of 15.2 SEER2, 10.6 EER2, and 7.8 HSPF2
- Gas furnaces needed 97%+ AFUE (ENERGY STAR Most Efficient) for the $600 credit
- The credit covered 30% of equipment + labor costs, subject to annual caps
- For 2026 installs: the active federal pathways are IRA HEAR (income-qualified up to $8,000) and HOMES (open to all incomes, performance-based), plus state/utility rebates. (Sources: IRS OBBB FAQ; Congress.gov CRS IN12611.)
- Pre-expiration (through Dec 31, 2025), 25C credits reset annually — the credit could be claimed every year for different improvements; that mechanism is moot for 2026+ installs since the credit no longer exists.
- The $2,000 heat pump cap (separate from the $1,200 cap for other 25C improvements) was the pre-expiration rule under §25C(b); both expired together for property placed in service after Dec 31, 2025.
- HEAR vs HOMES hinges on income: households under 150% of area median income should route through IRA HEAR for a point-of-sale rebate up to $8,000 on a qualifying heat pump; households above that threshold use IRA HOMES (performance-based, no income cap). Stack utility rebates ($200–$2,000) and any DSIRE-listed state rebate ($0–$1,500) on top.
- Geothermal heat pumps under Section 25D also expired for property placed in service after Dec 31, 2025 (OBBBA repealed both 25C and 25D for post-2025 expenditures). Carryforward of an unused pre-2026 25D credit can still be claimed in future tax years; 25C does not allow carryforward.
- Always verify model eligibility using ENERGY STAR product finder before purchasing
Frequently Asked Questions
Zero — the federal Section 25C credit (which covered 30% of qualified costs, capped at $600/year for ACs and gas furnaces and $2,000/year for heat pumps, with a $3,200 total annual limit) expired for property placed in service after Dec 31, 2025 under the OBBBA. For 2026 installs, the active federal pathways are IRA HEAR (income-qualified, point-of-sale rebates up to $8,000 for heat pumps / $1,750 for water heaters) and IRA HOMES (open to all incomes, performance-based). State and utility rebates also remain available. (Sources: IRS OBBB FAQ; Congress.gov CRS IN12611.)
Sources & References
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