If you’ve been putting off replacing that old furnace, AC unit, or water heater, now’s the time to pull the trigger.
Some pretty generous federal tax credits on home energy upgrades are quickly coming to an end as of December 31, 2025.
A new federal law, the “Big Beautiful Bill,” has accelerated the tax credits’ end date, and the IRS recently confirmed the deadlines. So, if you want to save some money on your taxes while upgrading your home comfort, you’ve got until the end of this year to make it happen!
What’s changing and why you should care
Here’s the deal: the IRS announced back in August that two major tax credit programs are ending after December 31, 2025. The first one, called the Energy Efficient Home Improvement Credit (that’s Section 25C for you tax nerds), covers things like furnaces, AC systems, and certain water heaters. The second, the Residential Clean Energy Credit (Section 25D), handles bigger stuff like solar panels and geothermal systems. Both programs? Done after this year.
What this means for you is pretty straightforward. If you want to claim these credits on your 2025 tax return, your new equipment must be installed and operational by December 31, 2025. Just ordering it won’t cut it. The new equipment must be in your home and working before the ball drops on New Year’s Eve.
What still qualifies for 2025
The good news is there’s still time to take advantage of some solid savings. Let’s break down what you can still get credits for if you install it before the deadline.
For air-source heat pumps, you can get 30% of the cost back, up to $2,000. These are great if you want both heating and cooling in one efficient package. Gas or oil furnaces that meet high-efficiency standards? You’re looking at 30% back, up to $600. Central AC units that hit the efficiency requirements also qualify for 30% back, up to $600.
On the water heater front, if you go with a natural gas or oil water heater that’s high-efficiency, that’s 30% back up to $600. But if you spring for a heat pump water heater, the credit jumps to 30% of the cost with a cap of $2,000.
Now, there’s a catch you should know about. The overall annual maximum for the 25C credit is typically $3,200 total. That breaks down to up to $2,000 for heat pumps and heat pump water heaters, plus up to $1,200 for other improvements like windows, doors, regular AC units, and furnaces. So, you can’t just stack unlimited credits, but it’s still a nice chunk of change back.
The deadlines and fine print you need to know
Alright, let’s talk about the stuff that trips people up. First, that December 31, 2025 deadline is serious. The equipment must be “placed in service” by then, which is IRS-speak for “installed and actually working in your home.” Signing a contract in November and getting it installed in January 2026? Sorry, no credit for you.
Second, there’s this manufacturer PIN thing. For 2025, the IRS requires qualified manufacturers to register and provide a product identification number for equipment that qualifies for the 25C credit. Your contractor should give you this PIN, or you’ll find it on the product label. You’ll need it when you file your taxes, so don’t lose it.
Third, and this is important: these credits are non-refundable and you can’t carry them forward. What does that mean? If the credit is bigger than the taxes you actually owe, you don’t get the difference as a refund. And if you can’t use the whole credit this year because you don’t owe enough in taxes, sorry. You can’t save it for next year. It makes sense to think about your tax situation before going crazy with upgrades…consult your tax professional for clarification.
How to actually claim your credit
The process isn’t complicated, but you do need to keep your ducks in a row. First, make sure whatever equipment you’re buying meets qualifying criteria. Ask your contractor to confirm it meets the ENERGY STAR or efficiency criteria tied to the credit and get that manufacturer PIN from them.
Second, keep everything. And we mean everything. Invoices, model numbers, ENERGY STAR documentation, that PIN we keep mentioning, all of it. Stick it in a folder and keep it with your tax records. You probably won’t need to send it in with your return, but the IRS can ask for it later, and you don’t want to be scrambling around trying to find paperwork from a year ago.
Third, when you file your 2025 taxes (which you’ll do in early 2026), you’ll use IRS Form 5695. It’s specifically for residential energy credits. Part II is where you’ll claim the Energy Efficient Home Improvement Credit. The form’s not too bad, but if you’re not comfortable with tax forms, it’s worth having a tax pro help you out.
What happens in 2026?
Based on what the IRS is saying, these credits for furnaces, AC systems, and water heaters are done after December 31, 2025. There might be some state or local utility rebates still available, but the federal gravy train stops at the end of this year. Other incentives, like credits for EV chargers, have different end dates, but those are separate programs with their own rules.
The bottom line? If you’ve been on the fence about replacing your aging furnace, AC, or water heater, this is your year. Not only will you get a more efficient, reliable system that’ll save you money on energy bills, but you’ll also get a nice tax credit to help offset the cost. Just don’t wait until the last minute.
Ready to take advantage of these tax credits?
We know this is a lot of information to digest, and you probably have questions about what equipment would work best for your home or how to maximize these credits.
That’s what we’re here for! At Ballard, we’ve been helping San Bernardino area families with their home comfort needs for decades, and we can walk you through the whole process, from choosing qualifying equipment to making sure you get all the documentation you need for your taxes.
Whether you’re ready to schedule service or just want to talk through your options, we’re here to help. Don’t let these tax credits slip away.Give us a call at 909-297-1914, and let’s get you set up with a more efficient, reliable system before the clock runs out.
