Energy Efficient Home Improvement Credit: Ended December 31, 2025
Congress repealed this credit effective December 31, 2025. If you completed work in 2025 you can still claim it on that year’s return, and the rules below are unchanged for that year. If you’re planning work now, Mass Save rebates are where the money is in Massachusetts.
Key Takeaways
- Covered 30% of costs up to $3,200 per year, for work finished by 31 Dec 2025
- Heat pumps alone qualified for up to $2,000, through 31 Dec 2025
- Stack with Mass Save rebates for up to $13,200+ in total savings
- Annual limits reset every year—spread projects for maximum benefit
What Is the Energy Efficient Home Improvement Credit?
The Energy Efficient Home Improvement Credit (also known as the 25C credit, after its section in the tax code) was a federal tax credit that rewarded homeowners for making energy-saving upgrades to their homes. It was repealed effective 31 December 2025.
Originally created in 2005 and significantly expanded by the Inflation Reduction Act of 2022, this energy efficient home improvement tax credit let you claim 30% of the cost of qualifying improvements—things like heat pumps, insulation, windows, and doors. The One Big Beautiful Bill Act (P.L. 119-21) repealed it for anything placed in service after 31 December 2025.
Unlike a tax deduction (which reduces your taxable income), a tax credit reduced your actual tax bill dollar-for-dollar. If you owed $5,000 in federal taxes and claimed a $2,000 credit, you paid $3,000.
Important: 25C vs. 25D
Don't confuse this with the Residential Clean Energy Credit (25D), which covered solar panels and battery storage. 25C was for efficiency improvements, 25D for clean energy generation, and through 2025 you could claim both. Both were repealed on the same date.
How Much Can You Claim?
The energy efficient home improvement credit has a tiered structure with annual limits:
2026 Annual Credit Limits
Heat Pumps & Heat Pump Water Heaters
Highest efficiency tier required
All Other Improvements Combined
Insulation, windows, doors, electrical panel, etc.
Maximum Annual Credit
Heat pumps + other improvements
Within that $1,200 "other improvements" bucket, there are sub-limits:
- $600 max for windows and skylights
- $500 max for doors ($250 per door)
- $600 max for electrical panel upgrades
- $150 max for home energy audits
Pro Tip: Spread Projects Over Multiple Years
Since limits reset each tax year, consider spacing out major projects. Install a heat pump in 2026 ($2,000 credit), then do windows and insulation in 2027 ($1,200 credit) to maximize your total energy saving rebates.
What Improvements Qualify?
Not every energy upgrade qualified for the energy efficient home improvement tax credit. Equipment had to meet specific efficiency standards, and the improvement had to be for your primary residence — not a rental property or second home.
Heat Pumps & HVAC
| Improvement | Credit Amount | Requirements |
|---|---|---|
| Air Source Heat Pumps | 30% up to $2,000 | Must meet highest efficiency tier (CEE) |
| Ground Source Heat Pumps | 30% up to $2,000 | Meets Energy Star requirements |
| Heat Pump Water Heaters | 30% up to $2,000 | Meets Energy Star requirements |
| Central Air Conditioners | 30% up to $600 | SEER2 16 or higher |
| Natural Gas Furnaces | 30% up to $600 | AFUE 97% or higher |
| Boilers | 30% up to $600 | AFUE 95% or higher |
Building Envelope
| Improvement | Credit Amount | Requirements |
|---|---|---|
| Insulation | 30% up to $1,200 | Meets IECC standards |
| Exterior Windows | 30% up to $600 | Energy Star certified |
| Skylights | 30% up to $600 | Energy Star certified |
| Exterior Doors | 30% up to $500 ($250/door) | Energy Star certified |
| Air Sealing Materials | 30% up to $1,200 | Meets IECC standards |
Other Improvements
| Improvement | Credit Amount | Requirements |
|---|---|---|
| Electrical Panel Upgrade | 30% up to $600 | For 200+ amp service to support electrification |
| Home Energy Audit | 30% up to $150 | Must meet DOE requirements |
| Biomass Stoves | 30% up to $2,000 | 75% efficiency or higher |
Stacking with Mass Save Rebates: The Massachusetts Advantage
Through 2025, Massachusetts residents could combine the federal energy efficient home improvement credit with Mass Save rebates, and the two together covered 70-90% of a typical project. Since the credit's repeal on 31 December 2025, Mass Save alone does the work — still 75-100% on insulation, and up to $8,500 on a whole-home heat pump.
Example: Heat Pump Installation in 2026
* Mass Save pays $2,650 per ton up to $8,500; this example assumes a system large enough to reach the cap. Income-qualified households can receive up to $16,000. Through December 31, 2025 this same project also earned a $1,500 federal credit, bringing it to $3,500 — that credit is no longer available.
How to Stack Correctly
- Apply for Mass Save rebates first. These reduce your out-of-pocket cost and are typically processed faster.
- The federal credit no longer applies. Through December 31, 2025 you calculated 30% of whatever you paid after the rebate. For work done in 2026 there is no federal credit to add.
- Keep all receipts and documentation. If the work was finished by 31 Dec 2025, claim the credit on Form 5695 with that year's return.
What Massachusetts Pays in 2026
- • Heat pump: up to $8,500 Mass Save, or up to $16,000 if you qualify on income
- • Insulation: 75% of the cost covered, or 100% for income-eligible households
- • Heat pump water heater: $750, or $1,500 for a split system
The federal 25C credit that previously stacked on top of these ended December 31, 2025.
How to Claim the Energy Efficient Home Improvement Credit
Verify Eligibility
Before purchasing, confirm your equipment meets efficiency requirements. Look for:
- • Energy Star certification (for windows, doors, appliances)
- • CEE highest efficiency tier (for heat pumps)
- • Manufacturer certification statement
Keep Your Documentation
Save these documents for your tax records:
- • Itemized receipts showing equipment costs
- • Manufacturer's certification statement
- • Contractor invoices with installation costs
- • Proof of purchase date
Complete IRS Form 5695
For a 2025 or earlier installation, complete Part II of IRS Form 5695 (Residential Energy Credits) with that year's federal return. You'll need to:
- • List each qualifying improvement
- • Enter the cost of each improvement
- • Calculate 30% of costs (up to the limits) — 2025 installations only
- • Transfer the credit to your Form 1040
File with Your Tax Return
Include Form 5695 with the return for the year the work was completed, up to and including 2025. The credit reduces your tax liability. Tax software like TurboTax or H&R Block walks through it. Nothing installed in 2026 qualifies.
Common Mistakes to Avoid
Claiming for rental properties
The 25C credit was only for your primary residence. Landlords could never claim it for rental units.
Buying non-qualifying equipment
Not all efficient equipment qualifies. Verify efficiency ratings meet IRS requirements before purchasing.
Losing documentation
The IRS may request proof. Keep receipts, manufacturer certifications, and invoices for 3+ years.
Exceeding annual limits
You can't carry forward unused credits. If you exceed limits, consider spreading projects across tax years.
Confusing 25C with 25D
Solar panels and batteries used the 25D credit (no annual limit); heat pumps and insulation used 25C. Both were repealed on 31 December 2025.
Expecting a refund
This is a non-refundable credit. It can only reduce taxes you owe—not generate a refund beyond that.
The Bottom Line
The Energy Efficient Home Improvement Credit is one of the best tools available for reducing the cost of home energy upgrades. With up to $3,200 available annually—and the ability to stack with Massachusetts energy saving rebates through Mass Save—homeowners can dramatically reduce out-of-pocket costs for heat pumps, insulation, windows, and more.
The key is planning ahead: verify equipment qualifies before purchasing, keep meticulous records, and consider spreading major projects across multiple tax years to maximize your total credits.
For Massachusetts residents, Mass Save rebates now carry the case on their own — 75-100% on insulation and up to $8,500 on a whole-home heat pump — since the federal credits ended on 31 December 2025.
Ready to Get Started?
Find every Massachusetts rebate your project qualifies for — since the federal credits ended, these are what's left.
Frequently Asked Questions
What is the Energy Efficient Home Improvement Credit?
The Energy Efficient Home Improvement Credit (Section 25C) was a federal tax credit that let homeowners claim 30% of the cost of qualifying efficiency improvements — heat pumps, insulation, windows, doors — up to annual limits. It was repealed by the One Big Beautiful Bill Act and applies only to property placed in service on or before 31 December 2025.
How much could you claim with the 25C tax credit?
You can claim up to $3,200 per year: $1,200 for most improvements (windows, doors, insulation, electrical panel) plus $2,000 for heat pumps or heat pump water heaters. The limits reset each tax year.
Can I combine the federal tax credit with Mass Save rebates?
Through 2025 you could: you applied for Mass Save rebates first, then claimed the federal credit on your remaining out-of-pocket costs. The 25C credit was repealed effective 31 December 2025, so for 2026 work there is nothing left to stack — the Mass Save rebate stands alone.
What form do I use to claim the Energy Efficient Home Improvement Credit?
For a 2025 or earlier installation, use IRS Form 5695 (Residential Energy Credits) with that year's federal return; Part II of the form is specifically for the Energy Efficient Home Improvement Credit. Work done in 2026 does not qualify — the credit was repealed effective 31 December 2025.
Was the 25C credit refundable?
No, the Energy Efficient Home Improvement Credit is non-refundable. This means it can reduce your tax liability to zero, but you won't receive any excess as a refund. However, unused credits cannot be carried forward to future years.