For a heat pump newly placed in service in 2026, do not subtract the former federal Section 25C Energy Efficient Home Improvement Credit from your installation budget. The IRS says that credit is not allowed for property placed in service after December 31, 2025. This article was checked against IRS sources on October 21, 2026.
The deadline that changed the calculation
The IRS explanation of Public Law 119-21 explicitly gives the termination date for Section 25C. The law-change guidance is the current IRS reference used for this article’s timeline. Older summaries that describe credits continuing through 2032 do not establish eligibility for a new 2026 installation.
Distinguish an installation year from a filing year. A homeowner preparing a tax return in 2026 may be reporting an eligible improvement completed in 2025. That does not mean a system installed during 2026 qualifies. A deposit date, advertisement, or contractor’s projected “net price” should not replace the IRS timing rules.
| Situation | How to approach the credit |
|---|---|
| New heat pump placed in service in 2026 | Do not include a Section 25C credit in the budget |
| Qualifying improvement completed in 2025 | Review the 2025 rules and filing documentation |
| Quote still subtracts a federal heat-pump credit | Ask the bidder to identify the current provision and eligibility basis |
| State or utility incentive offered in 2026 | Check that separate program directly; it is not Section 25C |
What the historical credit was
The IRS credit page describes a 30 percent credit for certain qualifying expenses and a separate annual limit of $2,000 for qualifying heat pumps and specified related equipment categories. The credit was nonrefundable, and unused Section 25C credit could not be carried to later years. These are historical rules for eligible work through 2025, not an offer for current installations.
Eligibility also depended on the home, equipment, and other requirements. The maximum was a cap, not an automatic payment to every purchaser. Someone reviewing a prior-year claim should consult the applicable instructions rather than assuming an invoice containing the words “heat pump” is sufficient.
If you are reviewing a 2025 installation
Gather the final invoice, installation or placed-in-service records, equipment model numbers, manufacturer documentation, and any rebates received. The 2025 Form 5695 instructions describe termination and the identification rules for applicable 2025 equipment. Keep the appropriate manufacturer identification information with the return records.
Ask a qualified tax professional about uncertain dates, mixed-use property, other credits, amended returns, or the effect of incentives on qualifying expenses. This publication explains the timing distinction; it cannot determine an individual tax liability or validate a return.
Rebuild a current quote without an obsolete discount
Suppose an illustrative installation proposal lists $12,500 before incentives and then subtracts $2,000 labeled “federal heat pump tax credit,” presenting $10,500 as the homeowner cost. If the property is newly placed in service in 2026, that Section 25C subtraction is not supported by the current IRS rule. The planning amount remains $12,500 before any separately verified incentive.
Those numbers are a hypothetical bookkeeping example, not a national installation price. The useful action is to request a revised quote that separates the contractual amount from conditional incentives. Identify who pays the installer, when any incentive would be received, and who bears the cost if an application is denied.
What to investigate instead
Use our state and utility rebate guide to check programs tied to your address, utility account, income, equipment, and installation date. A tax-credit expiration does not by itself answer whether a different program is open or funded.
Keep three columns in your budget: amount due under the installation contract, incentives already confirmed for the project, and possible incentives still awaiting verification. Do not treat an unapproved benefit as cash available for the down payment. Recheck official rules before signing, especially when installation will cross into another calendar year.