The 25C Energy Efficient Home Improvement Credit paid homeowners up to $2,000 per year for qualifying heat pump installations from 2023 through 2025. On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, accelerating the sunset of 25C and several other residential clean-energy credits from the original Inflation Reduction Act schedule. The credit officially expired on December 31, 2025. Installations placed in service in 2026 or later receive zero federal tax benefit under 25C.
What the credit used to cover
Through calendar year 2025, 25C paid 30% of the cost of a qualifying heat pump, capped at $2,000 per year. The eligibility bar was technical: the unit had to meet CEE Tier 2 (or higher) efficiency ratings for the region's climate zone. Installation labor was creditable. A separate $1,200 annual cap covered insulation, windows, doors, and electrical panel upgrades, with a lifetime $3,200 total across both categories. Homeowners claimed the credit on IRS Form 5695 the year the equipment was placed in service.
Timeline of the change
The original Inflation Reduction Act of 2022 set 25C to run through 2032 at the $2,000 annual heat pump cap. OBBBA changed that schedule in three specific steps.
The bill was introduced in the House in late May 2025, passed both chambers on a party-line vote in late June, and was signed by the President on July 4, 2025. The operative statutory language moved the 25C heat pump sunset date from December 31, 2032 to December 31, 2025 — a 7-year acceleration. There was no grace period for equipment ordered but not yet installed; the "placed in service" date remained the controlling test.
For heat pumps specifically, the effective date is December 31, 2025. Units placed in service on or before that date are eligible for the 2025 tax year credit, filed on Form 5695 with a return due April 15, 2026. Units placed in service January 1, 2026 or later get nothing under 25C.
What 25C items survived
OBBBA did not repeal every line of 25C — it targeted specific residential items. Several categories remained active, though most at reduced duration.
Solar PV (25D, not 25C) — the 30% residential solar credit remains fully intact through 2032 under Section 25D of the IRC. OBBBA did not touch this provision.
Geothermal ground-source heat pumps — these are claimed under 25D, not 25C, and retained their 30% credit through 2032. This is now the only federal tax credit available for heat-pump heating equipment in 2026.
Battery storage — 25D covers residential battery storage (3 kWh minimum) at 30% through 2032. OBBBA left this alone.
Envelope items under 25C — insulation, doors, windows, and air-sealing retained 25C eligibility through 2025 at the $1,200 annual cap, with a $500 lifetime subcap on doors and $600 on windows. These items lost forward eligibility on the same December 31, 2025 cutoff as heat pumps — the OBBBA repeal was comprehensive across 25C, not selective to heat pumps.
Electrical panel upgrades — the $600 panel credit under 25C expired December 31, 2025 along with the rest of 25C.
Strategic sequencing if you're mid-install across the transition
If equipment was ordered in 2025 but installation stretched into 2026, the "placed in service" rule governs. Payment date does not matter. Two scenarios worth walking through.
Equipment on-site, not yet commissioned. If the heat pump was delivered and paid for in December 2025 but the final inspection and system startup didn't happen until January 2026, you likely cannot claim 25C. Talk to your installer about expediting commissioning, and to your tax preparer before filing.
Phased install across tax years. If a heat pump went in late 2025 (eligible for $2,000) and the panel upgrade was pushed to Q1 2026, the heat pump portion is claimable, the panel portion is not. Document the equipment commissioning date precisely — state energy office inspections, utility interconnection approval, or AHRI/manufacturer activation logs are the defensible paper trail.
Backordered equipment. Several cold-climate heat pump models ran into supply-chain delays in late 2025 as installers rushed to beat the December 31 cutoff. If you ordered a specific model in November or December 2025 but the manufacturer could not ship until January 2026, the commissioning-date test still governs. There is no "good faith" extension in the statute. The practical workaround was to swap to an in-stock equivalent model with documented installation before year-end — several contractors did this aggressively in December 2025.
For new projects starting in 2026, the math changes. Without 25C, the stack becomes HEEHRA (if your state is live — see our HEEHRA state-by-state status tracker) plus utility rebates plus any remaining state credit. Typical net cost after full stacking is in the $3,800–$9,200 range for a 2-to-4 ton system, versus $3,000–$7,500 with the old 25C stack. The gap is not catastrophic but it is real, and it changes the financing conversation for middle-income households above the HEEHRA 150% AMI ceiling.
For households above the HEEHRA AMI ceiling, the forward path is narrower. Utility rebates typically run $500–$3,500 and are income-agnostic. Some states — Massachusetts, New York, Oregon — maintain state-level income tax credits for heat pump installs that are not means-tested. And the 25D geothermal credit remains available at 30% through 2032 for homeowners willing to invest in ground-source systems, which run $25,000–$45,000 installed versus $15,000–$25,000 for air-source. The upfront premium is substantial but the 30% federal credit plus state and utility stacking can bring the net delta under $8,000 in many jurisdictions.
The politics, briefly
OBBBA's authors argued the credit disproportionately benefited higher-income households who would have installed heat pumps anyway, and that the revenue was better directed at deficit reduction. Industry pushback focused on the signal-effect: contractors had built business plans, marketing funnels, and financing products around the $2,000 incentive, and abrupt removal disrupted quote flows mid-season. The law's fast timeline (signed July, effective December) gave buyers roughly five months to place qualifying equipment in service.
Heat pumps were singled out while solar PV and battery storage survived under 25D largely because of lobby dynamics, not policy consistency. The residential solar industry has deeper political infrastructure built over 15 years; the residential heat-pump lobby is newer and was less organized ahead of the OBBBA markup. There is no publicly-announced reinstatement effort moving through Congress as of April 2026. Homeowners should plan around HEEHRA and state programs as the forward stack, not around a speculative future 25C revival.
What 2026 homeowners can still claim
Federal 25C and 25D (for solar and batteries) are both dead for air-source equipment in 2026. Geothermal ground-source heat pumps retain their 30% credit through 2032 under 25D — this is the only residential clean-energy tax credit still active for homeowners installing heat-pump heating. Every other rebate path is now state or utility based.
- HEEHRA (Home Electrification and Appliance Rebate Act) — up to $8,000 for heat pumps, income-qualified, disbursed by your state energy office. Status varies by state (see our HEEHRA state-by-state status tracker).
- HOMES rebates — performance-based, up to $8,000 for comprehensive home energy upgrades, also state-administered.
- Utility rebates — Mass Save, ConnectedSolutions, Xcel, ComEd, PG&E, and ~2,000 other utility programs still offer $500–$3,500 instant rebates on qualifying heat pumps.
Alternate federal incentives worth knowing
A few adjacent federal incentives survived OBBBA and can matter in specific situations.
179D Commercial Buildings Energy Efficiency Deduction — covers heat-pump installations in commercial buildings and (critically) in residential rental buildings of four or more units. Homeowners with small multifamily properties (duplex, triplex, fourplex) typically cannot use 179D, but rental owners of 4+ unit buildings can still claim up to $5/sqft in energy-efficiency deductions through 2032.
USDA Rural Energy for America Program (REAP) — agricultural producers and rural small businesses can access REAP grants and guaranteed loans for heat pump installations, up to 50% of project cost. Rural homeowners who operate a farm or home-based small business may qualify through the business-side rather than consumer-side federal path.
Tribal energy programs — DOE's Office of Indian Energy continues to fund tribal-member heat pump installations through separate Buy Indian Act-compatible programs. Tribal members should check with their tribal energy office.
State-level tax credits layered on HEEHRA — Massachusetts, New York, and Oregon each run state-specific income tax credits for heat pump installations that stack with HEEHRA rebates. These were not affected by OBBBA (state credits, different statute).
Does the repeal affect equipment already installed?
No. If you placed a qualifying heat pump in service on or before December 31, 2025, you can still claim the 25C credit on your 2025 tax return (filed by April 15, 2026). The repeal is prospective only — it does not retroactively invalidate installations that met the rules in effect at the time.
Run your 2026 stack
Enter your ZIP on our federal tax credits status page to see every rebate stack available to you today. The tool aggregates HEEHRA, HOMES, utility, and any remaining state credits — then shows which stack together and which are mutually exclusive. For the full rebate mechanics, see our rebate stacking guide, and for equipment selection start with the heat pump guide or estimate cost directly on the heat pump calculator.