The federal government will pay you up to $2,000 for installing a qualifying heat pump. That's real money back on your taxes, not a deduction that saves you a percentage, but an actual dollar-for-dollar credit.
Quick Summary
- Heat pumps qualify for up to $2,000 (30% of costs)
- Must meet CEE Highest Tier efficiency requirements
- Credit resets annually through 2032
- Non-refundable: reduces tax liability to zero max
Here's exactly what you get and how to claim it.
Credit Amounts
25C Credit Limits by Equipment
| Equipment | Credit Limit | Notes |
|---|---|---|
| Heat Pumps (electric) | $2,000 | 30% of costs |
| Central Air Conditioners | $600 | 30% of costs |
| Gas/Oil/Propane Furnaces | $600 | 30% of costs |
| Boilers | $600 | 30% of costs |
| Heat Pump Water Heaters | $2,000 | 30% of costs |
Heat pumps get the highest credit because they're the most efficient technology.
Heat pumps move heat instead of generating it, which means you can heat and cool your home at a fraction of the energy cost.
The 30% covers both equipment and labor. If you spent $8,000 on a heat pump installation, you'd calculate 30% ($2,400) but receive the maximum $2,000. For a $5,000 installation, you'd get $1,500 (30% of $5,000).
Tax Credit Calculator
This calculator provides an estimate. Your actual credit may vary based on your tax situation. The credit is non-refundable and cannot exceed your tax liability.
Efficiency Requirements
Not every heat pump qualifies. Your system must meet specific efficiency thresholds set by the IRS.
CEE Highest Tier Required
For heat pumps to qualify for the $2,000 credit, they must be on the CEE (Consortium for Energy Efficiency) Highest Tier list.
Air-source heat pumps must meet CEE Tier 1 standards (effective Jan 1, 2025):
- SEER2 ≥ 16 (cooling efficiency)
- EER2 ≥ 11 (cooling efficiency at peak load)
- HSPF2 ≥ 8.0 (heating efficiency)
Geothermal heat pumps: Different requirements apply. Check the ENERGY STAR criteria for geothermal systems.
These ratings appear on your equipment's AHRI certificate. If you're buying new equipment, ask your contractor to confirm CEE Highest Tier status before purchase. Our QMID directory links to manufacturers with qualifying equipment.
What's Covered
Yes, included in the credit
- Heat pump equipment cost
- Installation labor
- Thermostat upgrades (when installed with qualifying system)
- Electrical panel upgrades required for installation
No, not covered
- Ductwork modifications or installation
- Cosmetic work
- Extended warranties
- Maintenance agreements
Labor costs are a big deal. Many energy efficiency incentives only cover equipment. The 25C credit includes what you pay your contractor for installation, which can be 40-50% of the total project cost.
Timeline
Important: Credit Expired
The 25C credit expired December 31, 2025. The "One Big Beautiful Bill" (Public Law 119-21, signed July 4, 2025) terminated the credit early—it was originally extended through 2032 by the Inflation Reduction Act, but that extension was reversed. (IRS FAQ on Public Law 119-21)
Qualifying period: January 1, 2023 through December 31, 2025
The installation date matters, not the purchase date. If you installed a qualifying heat pump by December 31, 2025, you can still claim the credit on your 2025 tax return (filed in 2026).
Annual Limits
The $2,000 heat pump credit reset annually during the program's active years (2023-2025). Since the credit expired December 31, 2025, installations in 2026 and beyond do not qualify.
There's also a combined annual limit of $3,200 for all 25C credits:
- Heat pumps, HP water heaters: up to $2,000
- Other improvements (insulation, windows, doors): up to $1,200
You could theoretically claim $3,200 total if you max out both categories in the same year.
Stacking With Other Rebates
Maximize Your Savings
The 25C tax credit stacks with most utility rebates. Apply utility rebates first, then calculate your 25C credit on the remaining costs.
Example calculation:
- Total project cost: $10,000
- Utility rebate received: -$2,000
- Your out-of-pocket cost: $8,000
- 25C credit (30% of $8,000): $2,400
- Final credit (capped): $2,000
Some states also offer additional credits or rebates. Check your state energy office for local incentives that stack with the federal credit.
IRS Note
Rebates from manufacturers or retailers also reduce your basis. If you got a $500 manufacturer rebate, calculate your 25C credit on the remaining cost.
How to Claim the Credit
Gather Documentation
- Invoice showing equipment model, installation date, and total cost
- AHRI certificate confirming efficiency ratings
- Manufacturer's QMID code (find yours in our directory)
Complete Form 5695
- Part II covers Energy Efficient Home Improvement Credits
- Enter your QMID and costs on Line 29a
- Calculate your credit amount (30%, max $2,000)
Transfer to Form 1040
- The credit from Form 5695 goes to Schedule 3, line 5b
- This reduces your tax liability dollar-for-dollar
Keep Records
- Store all documentation for at least 3 years
- The IRS can request proof if audited
Income Limits
Good News
There are no income restrictions. Whether you make $30,000 or $3 million, you qualify for the same credit amounts.
However, the 25C credit is non-refundable. It can only reduce your tax liability to zero. If you owe $1,500 in taxes and have a $2,000 credit, you'll reduce your taxes to zero but won't receive the remaining $500.
No Carryforward
You cannot carry forward unused 25C credits to future years. Per IRS Notice 2013-70: "A taxpayer may not carry the credit forward. Thus, if a taxpayer cannot claim all or a portion of the credit in the year in which the related expenditure is treated as made, the unused amount of the credit will expire."
Getting Your QMID
Starting in 2025, you need your manufacturer's QMID (Qualified Manufacturer Identification Number) to claim the credit. This 4-character code proves your equipment came from an IRS-registered manufacturer.
The QMID is a 4-character alphanumeric code that identifies your equipment manufacturer. Enter it exactly as shown in the IRS database or our directory.
Find your QMID in our searchable directory. Enter your brand name and get the code instantly.
Common Questions
Official Resources
IRS overview of the Energy Efficient Home Improvement Credit
IRS.govFind which equipment meets CEE Highest Tier requirements
CEESearch certified heat pumps by brand and efficiency
ENERGY STAR