As 2025 starts to come to a close, there are many valuable federal tax credits that are set to expire. One of the biggest is for energy-efficient home upgrades, like HVAC systems. Below, we’ll walk you through some of the most significant benefits that are getting ready to expire so you can take advantage of them before the end of the year.
Residential Clean Energy Credit
One of the most well-known programs out there is the Residential Clean Energy Credit that’s established under the Inflation Reduction Act. You may also hear this credit referred to as Section 25D, as that’s how it’s established in the Internal Revenue Code. This tax credit offers a credit equal to 30% of the total cost, plus installation, for qualifying new clean energy systems.
Understanding Qualifying Systems
This particular program was established to encourage homeowners to invest in renewable energy systems for their homes. By lightening the burden of the higher up-front cost of these more eco-friendly options, homeowners may be more likely to purchase them. Systems that qualify are those powered by solar energy and geothermal heat pumps.
Eligibility Requirements
To be eligible for the Residential Clean Energy Credit, your new system must be placed in service by December 31, 2025. This is given in the form of a tax credit, meaning it reduces the amount of income tax that you owe to the federal government. This program does allow you to carry forward non-refundable credits into future tax years. It doesn’t have a maximum cap for the credit amount that you can claim.
This means that if you invest $10,000 in a solar-powered HVAC system, you can claim up to $3,000 in the form of a tax credit. It’s important to note that this program only works to reduce the income tax that you owe. It doesn’t offer a tax refund for any additional credit amount that offsets what you owe. This is where carrying forward your tax credit can come in handy.
To claim this tax credit, the property where your HVAC system is installed must be your primary or secondary residence located within the United States. You must own the new system, as leased systems don’t qualify for this credit.
Post-2025 Credit Changes
It’s crucial to know that the federal government has extended the Residential Clean Energy Credit through December 31, 2032. However, the maximum percentage amount you can claim on your tax return will decrease. As of right now, the final year to claim this tax credit is 2034, and you can claim a maximum amount of 22% of the total cost of your new system plus professional installation fees.
Energy Efficient Home Improvement Credit
This tax credit is similar to the one above, as it offers a 30% tax credit for qualifying HVAC system purchases. However, it’s commonly referred to as the Section 25C tax credit. It does set caps on credit amounts based on the type of system you purchase. Natural gas, propane, or oil furnaces or boilers qualify for a maximum tax credit of $600.
The same holds true for central air conditioning systems. Heat pumps, biomass boilers, and biomass stoves have a separate annual limit of $2,000. Just as with the other tax credit, your new system must be installed within your primary or secondary residence located within the United States. The particular system you choose must meet the minimum efficiency standards and be produced by a qualified manufacturer.
How to Claim These Tax Credits
Knowing that you’re eligible for a tax credit is just one part of the equation. It’s also important to understand how to claim your tax credit. The first thing you want to do is verify your eligibility by checking to ensure that your new HVAC system meets the minimum requirements set by the particular credit you’re trying to take advantage of. Most of them require ENERGY STAR certification. Others will also require your new system to meet minimum SEER2 standards.
It’s absolutely vital that your new system be installed before the end of 2025 to be eligible for these tax credits. You’ll need to file IRS Form 5695 alongside your 2025 federal income tax return. Be sure to keep copies of all your purchase receipts for your new system and installation as proof of eligibility for the program. These may be required if you’re audited by the IRS.
Helpful Tips for Maximizing Your Energy Savings
As with most things, it’s likely that you want to do as much as possible to maximize your energy savings for these tax credits before they expire. One of the best things you can do is plan ahead by scheduling your installation before the end of the year to ensure that it’s completed before the deadline. Always consult with a qualified contractor who can make sure your installation meets the necessary efficiency standards to claim the tax credit.
Every new HVAC system produced by a qualifying manufacturer will come with a unique QMID number that’s crucial to claiming your credit. It can be helpful to consider combining a new HVAC system with clean energy options like solar panels to maximize your savings for both tax credits.
Claiming Local Incentives
If your HVAC system is due for an upgrade, getting one for the end of 2025 can be highly beneficial. Taking advantage of these federal income tax credits can significantly lower the up-front cost of purchasing your new unit. One other thing to keep in mind is that most states and local municipalities also offer various tax credits and rebates. They can further reduce the up-front cost of your new heating or cooling system.
HEAR & HOMES Programs
One of North Carolina’s most prominent programs to encourage energy efficiency among homeowners is Energy Saver NC, which is administered by the NC Department of Environmental Quality (DEQ). Under the main program, there are two different sub-programs known as the Homeowners Managing Efficiency Savings (HOMES) and Home Electrification and Appliance Rebates (HEAR) programs.
In general, qualifying heat pumps are eligible for a rebate amount up to $8,000. The total amount of rebate that you’re eligible for will be highly dependent on your household income, with the lowest income tiers receiving the highest program rebates.
Utility Incentives
Another potential program you may qualify for is a rebate program through your local utility company. Utility companies, such as Duke Energy, are providing customers with a one-time utility bill credit when they show proof of purchasing a qualified new HVAC system.
This type of HVAC rebate is typically received by having a qualified HVAC contractor, who will file for the rebate on your behalf, do your new installation. The amount of the rebate is highly dependent on the utility company you use. We suggest researching this type of credit on the utility company’s website to learn what rebate amount you may be eligible to receive.
Quality HVAC Installation Service
Green Dot Heating & Air offers excellent HVAC installation service in Wilmington, NC. We can also assist with all your HVAC repair, replacement, and maintenance needs. Just call us today to schedule a consultation.
