HVAC Tax Credits & Rebates in 2026: What Changed
The federal heat pump tax credit (25C) ended for systems installed after 2025. What's left, how state rebates work, and how to update your HVAC quotes.
For three years, "you'll get up to $2,000 back from the IRS" was one of the easiest lines in an HVAC heat pump sale. That line is now wrong for any system installed in 2026. The 2025 budget law ended the main federal homeowner credits early. Plenty of customers (and some salespeople) haven't caught up yet.
This guide covers what changed, what still exists, and how to update your sales scripts and quotes so nobody on your team promises a customer money they won't get. It's written for shop owners and for techs who sell or are about to open a shop.
This is general information, not tax advice. We read the primary sources linked below in September 2026. Tax rules and state programs change. Your customers should confirm their own situation with a tax professional, and you should check irs.gov before you put any tax claim in writing.
The short version
- Section 25C (Energy Efficient Home Improvement Credit) is the one that covered heat pumps, central AC, furnaces, and boilers. It is not allowed for property placed in service after December 31, 2025.
- Section 25D (Residential Clean Energy Credit), which covered geothermal heat pumps (plus solar and batteries), is not allowed for expenditures made after December 31, 2025.
- Section 45L (builder credit for new energy efficient homes) is not allowed for homes acquired after June 30, 2026.
- State-run Home Energy Rebates (funded by the 2022 Inflation Reduction Act) are a separate program. They are run by states, territories, and Tribes, and whether they're available depends on where your customer lives.
What the 2025 budget law did
Public Law 119-21, commonly called the One Big Beautiful Bill Act, was enacted July 4, 2025. Source: GovInfo, Public Law 119-21
Three sections matter to residential HVAC:
- Sec. 70505, "Termination of energy efficient home improvement credit." It amended Section 25C(h) so the credit doesn't apply to property "placed in service after December 31, 2025". The previous end date in the law was December 31, 2032.
- Sec. 70506, "Termination of residential clean energy credit." It amended Section 25D(h) to end the credit "with respect to any expenditures made after December 31, 2025". The previous end date was 2034.
- Sec. 70508, "Termination of new energy efficient home credit." It changed the Section 45L end date from December 31, 2032 to June 30, 2026.
Source: Public Law 119-21 enacted text, Secs. 70505, 70506, 70508 (GovInfo)
The IRS confirmed each of these in its OBBB fact sheet (FS-2025-05, August 21, 2025):
- 25C: "The credit will not be allowed for any property placed in service after December 31, 2025."
- 25D: "The credit will not be allowed for any expenditures made after December 31, 2025."
- 45L: "The credit will not be allowed for any qualified new energy efficient home acquired after June 30, 2026."
"They paid a deposit in December" doesn't save the credit
For 25D (geothermal), the IRS says "an expenditure with respect to an item is treated as made when the original installation of the item is completed." Paid in 2025 but installed in 2026 means no 25D credit. Source: IRS FS-2025-05
For 25C, the test in the law is when the property was "placed in service," not when the customer paid. If a customer has an edge case (contract signed in 2025, equipment set in January 2026), don't guess. Send them to irs.gov and their tax preparer.
What 25C was, for customers who installed in 2025
Customers whose systems were installed in 2025 may still be claiming the credit on their 2025 return. Here's what the IRS says the credit was:
- 30% of certain qualified expenses, starting in 2023.
- Annual limits: "$1,200 for energy efficient property costs and certain energy efficient home improvements," and "$2,000 per year for qualified heat pumps, water heaters, biomass stoves or biomass boilers." Lower per-item limits applied within the $1,200; see the IRS page for them.
- Efficiency bar: heat pumps, central air conditioners, furnaces, and boilers had to "meet or exceed the CEE highest efficiency tier, not including any advanced tier, in effect at the beginning of the year when the property is installed."
- Home energy audit: up to $150.
- Product ID required for 2025: "no credit will be allowed unless the item was produced by a qualified manufacturer and the taxpayer reports the Qualified Manufacturer Identification Number (QMID) for the item on their tax return."
- How it's claimed: Form 5695, Residential Energy Credits.
Source: IRS, Energy Efficient Home Improvement Credit (page updated April 28, 2026)
What this means for you: if a 2025 customer calls asking for the QMID or model details for their return, give them the equipment paperwork fast. It's an easy goodwill call. Don't tell them whether they qualify; that's their tax preparer's job.
Geothermal (25D) and new construction (45L)
25D was 30% of the cost of qualified clean energy property, including geothermal heat pumps (which had to meet Energy Star requirements in effect at the time of purchase), claimed on Form
- It ended for expenditures made after December 31, 2025. Source: IRS, Residential Clean Energy Credit
45L is a credit for eligible contractors who build or sell qualified new energy efficient homes. If you do new-construction HVAC and your builder customers were counting on it, the cutoff for homes acquired was June 30, 2026. Builders should talk to their own tax advisor about homes acquired before that date. Source: IRS FS-2025-05
Commercial side note: the same law added a termination to the Section 179D energy efficient commercial buildings deduction: it doesn't apply to property "the construction of which begins after June 30, 2026" (Sec. 70507). If you do commercial retrofits, point building owners to their tax advisor. Source: Public Law 119-21, Sec. 70507
State Home Energy Rebates (HOMES and HEAR): separate, and state by state
The Home Energy Rebates are not tax credits. They are grant-funded rebates from the 2022 Inflation Reduction Act, and the Department of Energy says "States, territories, and Tribes are responsible for running the rebate programs." Source: DOE, Home Energy Rebates FAQ fact sheet (Dec. 2024)
There are two programs:
Home Efficiency Rebates (HOMES). For whole-home projects. Per DOE: all households are potentially eligible, with the largest rebates going to lower incomes; savings of "up to $8,000 depending on your household income and project's energy savings"; and the project must reduce the home's energy use by at least 20%.
Home Electrification and Appliance Rebates (HEAR). For equipment upgrades. Per DOE: up to $14,000 per household; up to 100% of costs for lower-income families and up to 50% for moderate-income families; only households under 150% of area median income are potentially eligible. "Your state will determine which products are eligible" from a list that includes up to:
| Item | Up to |
|---|---|
| ENERGY STAR-certified electric heat pump for space heating and cooling | $8,000 |
| Electrical panel | $4,000 |
| Electrical wiring | $2,500 |
| ENERGY STAR-certified heat pump water heater | $1,750 |
| Insulation, air sealing, and mechanical ventilation | $1,600 |
Source: DOE, Home Energy Rebates FAQ fact sheet
Note: that DOE fact sheet was written in December 2024 and still mentions federal tax credits "now." That part is out of date for 2026 installs (see above). Use it for the rebate figures only.
Status is state by state. DOE's program page says "Home Energy Rebates are now available in select states." We did not find a section of Public Law 119-21 that changes these two rebate programs, but each state sets its own launch date, eligible products, income checks, and contractor rules, and funding can run out. Before you mention a rebate to a customer, check your own state energy office's program page. Source: DOE, Home Energy Rebates Program; DOE, State Energy Offices directory
DOE's own advice to homeowners is also worth knowing: it "strongly recommends waiting until your state's rebate programs launch before beginning your projects," but "If your home urgently needs energy efficiency upgrades, don't wait." Source: DOE, Home Energy Rebates FAQ fact sheet
Utility and local rebates are separate again. Check your local utilities' current offers yourself; they change often.
Update your sales scripts and quotes
Don't overpromise: the advertising rule
The FTC's small-business advertising guide puts it simply: "Advertising must be truthful and non-deceptive" and "Advertisers must have evidence to back up their claims." It also says advertisers can't "use fine print to contradict other statements in an ad or to clear up misimpressions that the ad would leave otherwise." Source: FTC, Advertising FAQ's: A Guide for Small Business
So "Get $2,000 back on a new heat pump!*" with a footnote doesn't fix a claim that's no longer true. Your state may have its own consumer protection rules too.
A cleanup checklist
What to say instead
Plain, honest lines that don't depend on a credit:
- When a customer asks about the federal credit: "The federal heat pump tax credit ended for systems installed after 2025, so I won't put it in your price. Check irs.gov or your tax preparer if you want to confirm."
- When a state rebate might apply: "Our state has [program name]. It depends on your income and the equipment. Here's the state's page. Let's check if you qualify before we count on it."
- When you haven't verified anything: "I don't know of a current rebate for this. I'd rather quote you the real price than promise money you might not get."
Sell on the real price
With no federal credit to shave the number, monthly payment and operating cost do more of the work. The free HVAC financing payment calculator shows the monthly payment for each of your good/better/best prices and what you keep after the lender's dealer fee. The good/better/best pricing guide covers how to build the three options.
Related guides and tools
- HVAC Good-Better-Best Pricing: building options customers can choose from without a credit propping up the top tier.
- HVAC Maintenance Agreements: another honest reason to buy from you that doesn't depend on tax law.
- Free HVAC business calculators, including the financing payment calculator. No email needed.
How are other shops selling heat pumps now?
With the federal credit gone, owners on the ground tend to know which state rebates are actually running before any report does. Ask what's working in their markets in the Growth Room Discord.