What to Know About Claiming the HVAC Tax Credit

This article is sponsored by American Residential Services (ARS)

Did you upgrade your HVAC system in 2025? You could recoup thousands of dollars on this year's tax return via the Section 25C Energy Efficient Home Improvement Credit.

While the federal HVAC tax credit is no longer available for new purchases, your energy-efficient unit might still qualify if it was installed on or before December 31, 2025.

If you made an HVAC upgrade and have yet to claim your credit, learn whether your system qualifies and, if so, how to use it to reduce the amount of income tax you owe (even if you already filed).

What was the HVAC tax credit?

The HVAC tax credit, officially known as the Energy Efficient Home Improvement Credit, or Section 25C of the Internal Revenue Code (IRC), was a federal incentive that allowed homeowners to claim up to 30% of qualified HVAC expenses.

The tax credit was established under the Inflation Reduction Act of 2022. It was originally scheduled to last through 2032, but Congress cut it short through the One Big Beautiful Bill Act (OBBBA). The OBBBA was signed into law on July 4, 2025, officially eliminating tax credits for HVAC systems installed after December 31, 2025.

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Does your system qualify?

Unfortunately, not all HVAC systems qualify for the federal tax incentive. Here are the requirements that your unit needs to meet to qualify.

• Type: Eligible equipment includes central air conditioners, gas and oil furnaces, hot-water boilers (natural gas, propane, or oil), biomass stoves and boilers, and electric or natural-gas heat pump water heaters.
• Efficiency standards: Heat pump systems, water heaters, and AC units must meet or exceed the Consortium for Energy Efficiency (CEE) highest efficiency tier, excluding advanced tiers. Furnaces and boilers must be ENERGY STAR certified, and biomass boilers should have a thermal efficiency rating of at least 75%. You'll need a manufacturer's certification statement to prove your system qualifies for the tax credit.
• Installation: The equipment must be installed in your principal residence in the U.S. The home must also be existing, not newly constructed.

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How much is the credit worth?

The federal tax credit covers 30% of HVAC costs. However, the value of the tax credit depends on your equipment. Here's a quick breakdown.

• 30% of the costs of biomass stoves or boilers, air source heat pumps, and heat pump water heaters up to $2,000
• 30% of the cost of central air conditioners, furnaces, natural gas water heaters, boilers, and electrical upgrades that enable the installation of energy-efficient HVAC units up to $1,200

You could stack these tax credits up to $3,200 if you invested in multiple systems or upgrades to maximize your savings. It's worth noting, however, that the credits are nonrefundable, meaning you can't claim more than your 2025 tax obligation.

To put that in perspective, American Residential Services (ARS) reports that a full HVAC system replacement typically runs between about $12,000 and $16,000, depending on system type, home size, and installation requirements. A heat pump or central AC replacement often falls in a similar range. Even with the $1,200 cap on most systems, the credit offsets a meaningful share of that investment.

How to claim the credit on your 2025 tax return

Ready to claim your 2025 HVAC tax credit? Here's a step-by-step guide.

1. Check your system's eligibility: Confirm whether your unit meets the qualification requirements discussed above.
2. Gather relevant documentation and details: You'll need purchase receipts and installation invoices to show how much you incurred as well as certification statements and Qualified Manufacturer Identification Numbers (from your systems' manufacturers or installers) to prove eligibility.
3. Download and fill out IRS Form 5695, Residential Energy Credits: Complete the Energy Efficient Home Improvement Credit section (Part II). You'll need to enter your system's total qualified costs, provide pertinent QMIDs, and calculate your potential tax credits, making sure not to exceed the provided caps.
4. Fill out Schedule 3, Additional Credits and Payments: Enter your tax credit amount on Line 5 of the document.
5. Complete IRS Form 1040, U.S. Individual Income Tax Return: Transfer the total tax credit amount from Schedule 3, Line 8, to Line 20 of your Form 1040.
6. File your tax return: Submit the completed IRS Form 5695, Schedule 3, and Form 1040 to the IRS. If you didn't claim your tax credit and have already filed your return, fill out Part II of the IRS Form 1040-X, Amended U.S. Individual Income Tax Return, to amend it. Remember to attach your new Form 5695 and Schedule 3 along with the amended tax return.

Are there income limits?

No, the HVAC tax credit incentive doesn't have an income limit. You could claim it regardless of your earnings, as long as you owe taxes.

You also need to have installed an energy-efficient system in your existing (not new) primary residence (the home you live in for most of the year). If you install it in a home you don't live in or one you rent out, you can't claim the credit.

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The federal credit is gone, but state rebates may still apply

While the HVAC tax credit expired in 2025, there are still various federal, utility, and state-run rebate programs that might lower the cost of installing an energy-efficient system. Joey Dooley, a general manager at ARS with 23 years in the industry, puts it plainly: "For a full system replacement, it can be as little as about $12,000 all the way up to $25,000, and it can go much higher depending on the job." At that price point, stacking rebates wherever possible makes a real difference.

For example, the Home Efficiency Rebates (HOMES) program, overseen by the U.S. Department of Energy (DOE), offers up to $8,000 in rebates to households that install systems that reduce their energy usage by 15% to 35%.

The Home Electrification and Appliances Rebate (HEAR) program is also independent of the HVAC federal tax credit. This program provides discounts of up to $14,000 to low- to moderate-income (LMI) households that upgrade to ENERGY STAR-certified products. While authorized by the Inflation Reduction Act, this program is run at the state level, so eligibility requirements, conditions, and funding status might vary by jurisdiction.

Bottom line

The federal HVAC tax incentive expired in 2025. That said, you could still claim tax credits for your system this year if it was installed by December 31, 2025 (and some state or federal programs may offer rebates, too). Check your eligibility and compile all pertinent documents, such as HVAC manufacturers' statements. Then fill out Form 5695, Schedule 3, and Form 1040, along with Form 1040-X if you're amending your return, and submit them to the IRS. 

Not sure where to start? ARS offers in-home assessments and can walk you through your system's eligibility and any available incentives. Consult a tax professional, especially if you made multiple upgrades, to avoid leaving money on the table.