As an HVAC provider, one of the most powerful tools you can offer customers is not just comfort — it’s savings. The federal § 25C / Energy Efficient Home Improvement tax credit offers homeowners a compelling incentive to upgrade to high-efficiency HVAC systems. But that window is closing. This blog post walks your customers through what the 2025 25C tax credit is, how it works, eligibility rules, and what they need to do to claim it.
What Is the 25C Tax Credit?
- Under the Inflation Reduction Act (IRA) and related legislation, the Energy Efficient Home Improvement Credit (IRC § 25C) allows homeowners to claim a tax credit for making certain energy-efficient improvements, including qualifying HVAC equipment.
- For improvements placed in service from January 1, 2023 through December 31, 2025, the credit is 30% of eligible costs (including equipment, installation, and associated labor, where allowed) up to a defined limit.
- The § 25C credit is nonrefundable: it can reduce your tax liability, but you won’t receive “extra” cash beyond what you owe.
- Importantly, starting with 2025 installations, eligible HVAC or energy property must be manufactured by a “qualified manufacturer” (QM), and the homeowner must include the manufacturer’s PIN (Qualified Manufacturer Identification Number, or QMID) on their tax return.
Deadline alert: The § 25C credit is set to expire on December 31, 2025. That means equipment must be installed by the end of 2025 to qualify.
How Much Credit Can a Homeowner Get?
The credit limits depend on the type of equipment. Here’s how it breaks down:
| Type of Improvement | Typical Credit Rate | Maximum Credit (2025) | Notes |
|---|---|---|---|
| Heat pumps, heat pump water heaters, biomass stoves/boilers | 30% of cost | Up to $2,000 per year | Subject to meeting efficiency thresholds and QM & PIN rules. |
| Air conditioners, furnaces, boilers, water heaters, certain electrical upgrades | 30% of cost | Up to $600 per item (subject to annual cap) | Must meet higher efficiency tiers and QM rules. |
| Home envelope, insulation, windows, doors, energy audits, panels | 30% of cost | Up to $1,200 (for these items combined) | There is a combined cap for certain non-HVAC improvements. |
| Aggregate limit | — | Up to $3,200 in a single tax year (if combining HVAC + envelope, etc.) | But recall heat-pump category is capped separately. |
Example: A homeowner replaces an old furnace (that qualifies) and adds insulation in the same year. They might get, say, 30% of the furnace cost (capped at $600) plus 30% of insulation cost (counts against the $1,200 envelope cap), up to the $1,200 envelope/HVAC aggregate limit. If instead they install a qualified heat pump, they may get up to $2,000 just for that equipment.
What Makes an HVAC System “Qualified” for 2025?
To take advantage of the 25C credit, HVAC equipment must meet several technical and procedural conditions:
- Efficiency thresholds (CEE / ENERGY STAR tiers)
Products must meet or exceed the highest efficiency tier (excluding advanced tiers) established by the Consortium for Energy Efficiency (CEE) as of January 1 of the installation year. For example:- Central air conditioners (split systems) must now meet SEER2 ≥ 17.0 and EER2 ≥ 12.0 (as of 2025) to qualify.
- Packaged AC units must meet SEER2 ≥ 16.0 and EER2 ≥ 11.5.
- Heat pumps, including ductless systems, must meet required SEER2, HSPF2, EER2 metrics (depending on application).
- Gas furnaces must hit AFUE of 97%+.
- Qualified Manufacturer / PIN (QM / QMID)
For installations in 2025, the HVAC equipment must be manufactured by a qualified manufacturer (QM). The taxpayer must include the QM’s identification PIN (QMID) on their IRS Form 5695.- For example, Goodman lists their QM PIN as I7Q6 for qualifying 25C equipment.
- The IRS maintains a list of qualifying manufacturers.
- Placed in service by December 31, 2025
The equipment must be installed and operational by the end of 2025. - Home and ownership eligibility rules
- The home must be located in the U.S.
- The credit applies to primary residences (where you live most of the year), or in many cases a second home (not rental-only) for HVAC improvements.
- You must pay federal income tax in the year you apply the credit.
- Because it’s nonrefundable, the credit is limited by your tax liability.
Adjustments for rebates or subsidies
If you receive a rebate or incentive from a utility or government entity, that rebate may count as a “purchase price adjustment,” which reduces the basis on which you claim the credit.
