The Energy Efficient Home Improvement Credit (25C)
The primary HVAC-related tax credit is the Energy Efficient Home Improvement Credit. This credit allows homeowners to claim 30% of the cost of qualifying energy efficiency improvements, up to annual caps.
| Equipment Type | Annual Credit Cap |
|---|---|
| Heat pumps (air source) | $2,000 |
| Central AC (qualifying efficiency) | $600 |
| Gas furnace (qualifying efficiency) | $600 |
| Smart thermostats | $150 |
| Home energy audits | $150 |
Qualifying Equipment Requirements
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For heat pumps, the requirement is 15 SEER2 / 8.1 HSPF2 for split systems. For central AC, the requirement is 16 SEER2. For gas furnaces, the requirement is 97% AFUE. The equipment must be installed in your primary residence.
How to Claim the Credit
The 25C credit is a nonrefundable tax credit, meaning it reduces your tax liability dollar-for-dollar but cannot generate a refund if it exceeds your tax liability. File IRS Form 5695 with your tax return for the year the equipment was installed.
Stacking Credits and Rebates
A qualifying heat pump installation might generate: Austin Energy rebate ($400–$800) + Federal 25C credit (up to $2,000) = $2,400–$2,800 in total incentives. This combination makes high-efficiency heat pump installations significantly more financially attractive than the sticker price suggests.
This information is for general guidance only and should not be construed as tax advice. Consult with a tax professional.
