July 2025 update: The One Big Beautiful Bill signed by President Trump on July 4 terminates these tax credits after December 31, 2025. As a result, customer demand for heat pumps and heat pump hot water heaters is expected to spike. Beat the rush and get free, expert, money-saving advice from QuitCarbon to claim the tax credit before the cut-off date.
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. This means your total tax owed will be reduced by the amount of the credit. 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 17-digit Product Identification Number, or failing that, a 4-digit Qualified Manufacturer number. If you can't find the number on the heat pump, ask your contractor to locate it for you. Don't worry, you won’t actually need the code until you file your 2025 return, sometime in 2026.
We recommend starting these projects as soon as possible and completing them in November to allow extra time for permitting, equipment shortages, contractor delays, or other surprises. Start by registering your home with QuitCarbon for free, expert guidance and vetted contractors to make your journey as smooth and cost-effective as possible.
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.
Please contact your tax preparer if you have detailed questions about claiming these credits.
Want free guidance on upgrading your home? QuitCarbon provides free ENERGY STAR® certified guidance along with vetted local contractors to upgrade your home with heat pumps, induction cooking, EV chargers, solar, batteries, and more. Click here to get started.