Energy Efficient Home Improvement Tax Credit: What Qualifies and How Much You Get

The short answer

If you made qualifying energy upgrades to your home in 2025 — new insulation, an ENERGY STAR heat pump, a home energy audit — you can likely claim 30% of the cost, up to annual caps that top out at $3,200, on the tax return you file in 2026. But here’s the catch homeowners need to know: Congress ended this credit early. Under the tax law signed in July 2025 (often called the One Big Beautiful Bill Act), the Energy Efficient Home Improvement Credit does not apply to improvements placed in service after December 31, 2025. So for upgrades you’re planning to make in 2026 and beyond, this credit generally isn’t available anymore, unless a future law brings it back. Always confirm current status at IRS.gov before you buy equipment expecting a tax break.

What this credit actually covers

The Energy Efficient Home Improvement Credit — sometimes called the 25C credit, after its section of the tax code — rewards homeowners who make their existing home more efficient rather than build something new. It was expanded by the Inflation Reduction Act starting with tax year 2023, replacing an older, much smaller version of the same idea.

The logic is straightforward: a drafty house or an inefficient furnace wastes energy and money every year it’s in service. The credit shares the upfront cost of fixing that, on the theory that lower household energy use benefits the homeowner’s wallet and reduces strain on the broader energy system. Unlike a tax deduction, which only reduces the income you’re taxed on, a tax credit reduces your tax bill dollar for dollar — up to the limits below.

Two features make this credit different from most others:

It’s annual, not lifetime. In its earlier form, this credit had a $500 cap you could only use once in your life. The current version resets every calendar year, so a homeowner who replaced windows in 2023, added insulation in 2024, and installed a heat pump in 2025 could claim a credit in each of those three years.
It’s nonrefundable, with no carryforward. The credit can bring your tax liability down to zero, but it won’t generate a refund beyond what you owe, and any unused portion doesn’t roll into next year’s return.

How much you get, item by item

The credit equals 30% of your cost for qualifying equipment and materials (labor counts for qualifying residential energy property — heat pumps, heat pump water heaters, central air conditioners, furnaces and boilers, water heaters, and panelboard upgrades — but not for building envelope components such as windows, skylights, doors, and insulation), subject to per-item and annual caps. There are two separate annual “buckets,” and money from one doesn’t reduce room in the other.

Category	Credit rate	Cap
Exterior windows and skylights	30% of cost	$600 total per year
Exterior doors	30% of cost	$250 per door, $500 total per year
Insulation and air sealing materials	30% of cost	Counts toward the $1,200 overall cap
Home energy audit (by a certified auditor)	30% of cost	$150 per year
Central air conditioners, gas/oil/propane furnaces and boilers	30% of cost	$600 per item
Electrical panel upgrades (panelboards, sub-panelboards, branch circuits, feeders that meet the National Electric Code and have a capacity of 200 amps or more)	30% of cost	$600 per item
Combined limit for everything above	—	$1,200 per year
Electric or natural gas heat pumps	30% of cost	$2,000 per year
Heat pump water heaters	30% of cost	$2,000 per year (shared with heat pumps)
Biomass stoves and boilers	30% of cost	$2,000 per year (shared with heat pumps)
Maximum total credit in one tax year	—	$3,200

Figures reflect the rules in effect for tax year 2025, per IRS.gov. Because the underlying items (windows, doors, audits, HVAC) sit in one $1,200 bucket and heat pumps/water heaters/biomass equipment sit in a separate $2,000 bucket, a household that does a lot of work in one year can legitimately claim both caps.

Eligibility rules worth knowing

The home has to be existing, not new construction, and located in the United States. You can’t claim this credit for efficiency upgrades built into a brand-new house.
For most improvements, the home must be your principal residence. Second homes you use yourself (not rentals) can qualify for some items, but the home energy audit credit specifically requires your primary residence, according to IRS.gov.
Landlords generally can’t claim it for rental property they don’t live in.
Products must meet specific efficiency standards — often the highest tier set by the Consortium for Energy Efficiency (CEE), or ENERGY STAR’s Most Efficient designation, depending on the equipment. A standard-efficiency furnace bought on sale won’t necessarily qualify just because it’s new.
For specified property placed in service on or after January 1, 2025, the item must be produced by an IRS-registered qualified manufacturer, and you generally must report the product identification number (PIN) — or, for 2025, the manufacturer’s QM code — on your return. Insulation and air sealing materials are the one category exempt from the qualified-manufacturer and PIN requirements, and no PIN is required for a home energy audit. Keep the manufacturer’s certification statement and receipts — the IRS can ask for documentation.
Home energy audits must be conducted by a home energy auditor who meets the certification requirements the IRS set out in Notice 2023-59 and must include a written report with, at minimum, an estimate of energy and cost savings.

A worked example

Say a homeowner in Ohio spends the following in 2025:

$4,000 on ENERGY STAR-certified replacement windows
$8,500 on an ENERGY STAR heat pump to replace an aging furnace and central AC (including installation)
$400 on a certified home energy audit

Here’s how the math works out:

Windows: 30% of $4,000 = $1,200, but the windows-specific cap is $600. She gets $600.
Home energy audit: 30% of $400 = $120, under the $150 cap. She gets the full $120.
Heat pump: 30% of $8,500 = $2,550, but the heat pump cap is $2,000. She gets $2,000.

Check the buckets: windows ($600) plus audit ($120) equals $720, which fits comfortably under the combined $1,200 cap for that group — so nothing is lost there. The heat pump sits in its own separate $2,000 bucket. Total credit: $600 + $120 + $2,000 = $2,720, claimed on the tax return she files for that year using IRS Form 5695.

If she’d also replaced two exterior doors at $900 each, she could add another $500 (capped at $250 per door), but only if there’s still room in the $1,200 combined cap — in this case, $720 already used leaves $480 of room, so she’d get $480 more rather than the full $500, since doors, windows, insulation, audits, and central HVAC all draw from that same $1,200 pool.

How to claim it

Keep your receipts and the manufacturer’s certification statement showing the product meets the required efficiency standard, plus the product identification number (PIN) or qualified manufacturer code for specified property placed in service in 2025 (insulation and air sealing materials and home energy audits don’t require one).
File Form 5695, Residential Energy Credits, with your federal tax return for the year the improvement was placed in service — not the year you paid a deposit or signed a contract.
Carry the result to Schedule 3 of Form 1040.
Don’t expect a refund from this credit alone — it only offsets tax you actually owe, and any unused amount is lost, not carried forward.

Why the rules changed for 2026

The version of this credit described above — 30%, up to $3,200 a year — was a centerpiece of the Inflation Reduction Act’s push toward household electrification, originally scheduled to run through 2032. That changed when the One Big Beautiful Bill Act was signed into law in July 2025. It ended the Energy Efficient Home Improvement Credit for property placed in service after December 31, 2025, and ended the related Residential Clean Energy Credit for solar and battery storage for expenditures made after December 31, 2025 — and under Section 25D(e)(8)(A) an expenditure counts as made when the original installation is completed.

Practically, that means:

Improvements completed and installed by December 31, 2025, remain eligible when you file your 2025 return.
Improvements installed starting January 1, 2026, generally do not qualify for this federal credit under current law.
State and utility rebate programs are separate from this federal credit and may still be available — check your state energy office or utility company directly, since those vary widely and change often.

Because tax law can shift again, and because contractors and equipment sellers have a financial incentive to tell you a credit applies even when it doesn’t, verify the current rules directly on IRS.gov before signing a contract based on an assumed tax benefit.

Is this the same as the solar tax credit?

No. Solar panels, solar water heaters, and battery storage fall under a separate provision, the Residential Clean Energy Credit (Section 25D), which historically offered 30% with no dollar cap. That credit was also ended under the same 2025 law, for expenditures made after December 31, 2025 — and because an expenditure is treated as made when installation is completed, a system finished in 2026 doesn’t qualify even if you paid a deposit or the full price in 2025. Check IRS.gov for the current status of both credits before assuming either applies.

Can I claim this credit if I rent out part of my home?

If you live in the home as your principal residence and rent out a portion, you generally can claim the credit for the percentage of the improvement attributable to your personal living space, not the rented portion. Landlords who don’t live in the property themselves don’t qualify. Because these situations get fact-specific, IRS Publication guidance and Form 5695 instructions are the right place to check the details for your situation.

What if my tax liability is smaller than the credit I qualify for?

The credit will reduce your tax bill to zero at most — it’s nonrefundable, and it doesn’t carry forward to next year. If you’re planning a large purchase, such as a heat pump, and you know your tax liability for the year is modest, that’s worth factoring into timing, since spreading eligible purchases across two tax years (when the credit was available) could have made better use of the annual caps than concentrating them in one year.

Sources:
– IRS.gov, Energy Efficient Home Improvement Credit: https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit
– IRS.gov, About Form 5695: https://www.irs.gov/forms-pubs/about-form-5695
– ENERGY STAR, Federal Tax Credits for Energy Efficiency: https://www.energystar.gov/about/federal-tax-credits
– IRS Newsroom: https://www.irs.gov/newsroom

Check the official source →

This article is for general information only and is not financial, legal, or tax advice. Program rules change and vary by state — always confirm details with the official agency (.gov) before acting.