When you file your federal taxes, you may be able to claim a tax credit of 30% of the project cost, after other rebates and incentives, up to $2,000, for projects completed in 2025. This means your total tax owed will be reduced by the amount of the credit. This is the last tax period in which you will be able to claim this credit, as it ended on December 31, 2025.
Known as 25C, this particular credit is available for new heat pumps and heat pump water heaters (HPWH) in your residence, whether you rent or own the property, or whether it is a primary residence or second home. It is not available for landlords, investment properties, or new construction.
The credit is limited to $2,000 per tax year, meaning it will apply to a heat pump or a heat pump water heater in 2025. You must have tax liability for the credit to offset; if you have no tax liability, then the credit won't be helpful to you. Unfortunately, due to the termination of the program, you won't be able to claim a credit for other projects in future years.
To claim the credit, include the project expense on Part II of Form 5695 of your 2025 tax return. When in doubt, provide all invoices for clean energy work to your tax preparer.
You will also need to include the 4-digit Qualified Manufacturer (QM) code. IRS guidance indicates that for products placed in service on or after January 1, 2025 and before January 1, 2026, you can use the QM code in your taxes. We wrote an article on this topic to make it easier to find the right QM code: What QM Code (Form 5695) do I need for the heat pump tax credit?
You may also use Part II of Form 5695 to claim up to $1,200 total in credits for other electrification-related projects (please see the instructions for limits, qualifications, and other details, including that these may only be installed in a primary residence):
- Insulation and air sealing
- Electrical sub-panel installation to support a heat pump or heat pump water heater
- Home energy audit
- Exterior doors and windows
Note that you may not carry forward unused tax credits from 25C to future years, so make sure that you are maximizing your benefit in the current year. Your QuitCarbon Home Insights will show you which credits apply for which upgrades in your home - and all the other rebates and incentives available to you.
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Got solar or a home battery last year and are curious about your tax credit? Check out our article: What you need to know about federal tax credits for solar and batteries
Please contact your tax preparer if you have detailed questions about claiming these credits.
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