The Heat Pump and Insulation Tax Credit Also Ended in 2025 — Here's What It Used to Cover

Our earlier guide to this credit described an annually-renewing federal incentive for heat pumps, insulation, and windows. That guide needs an update, and so does anyone's renovation budget that's still counting on it: the Energy Efficient Home Improvement Credit (Section 25C) expired for property placed in service after December 31, 2025, under the same law that ended the solar credit.

What this credit covered, while it existed

Unlike the uncapped 30% solar credit, Section 25C was structured around annual dollar caps rather than a flat percentage of total project cost:

| Category | Rate | Annual cap structure (through 2025) | |---|---|---| | Insulation, air sealing, exterior doors, windows/skylights | 30% of cost | Counted toward a combined $1,200 annual cap (with its own sub-limits — commonly around $600 for windows and $250 per door, $500 total for doors) | | Heat pumps, heat pump water heaters, biomass stoves/boilers | 30% of cost | A separate $2,000 annual cap, not counted against the $1,200 general cap | | Home energy audits | 30% of audit cost | A specific per-audit cap, counted toward the general $1,200 limit |

That structure meant a household could, in the same year, claim up to roughly $1,200 for general improvements plus up to $2,000 for a heat pump — a detail that made timing large renovations across two tax years a genuinely useful strategy under the old rules.

What changed under the OBBBA

The Section 25C credit is terminated for property placed in service after December 31, 2025 — the same cutoff date as the solar credit, though it's a separate section of the tax code with its own rules. There's no phase-down; qualifying improvements completed in 2025 are covered, and anything completed in 2026 or later is not.

A timing mistake that's now permanent

Before the OBBBA, spreading a big renovation across two tax years to capture two years of caps was a legitimate way to maximize the credit. That strategy is now foreclosed for anyone who didn't finish in time.

Case study. A homeowner planned a $22,000 renovation: a $9,000 heat pump installed in December 2025 and $6,000 of insulation and window work originally scheduled for January 2026, specifically to spread the projects across two tax years and claim close to $3,200 in combined credit ($2,000 for the heat pump in 2025, plus a share of the $1,200 general cap split between the two years).

The heat pump installation finished on schedule in December 2025 and qualified for the full $2,000 credit. But the insulation and window work slipped to February 2026 due to a contractor scheduling delay — and because Section 25C no longer exists for 2026 installations, that portion generates zero federal credit instead of the roughly $1,200 the homeowner had budgeted for. The lesson isn't "the strategy was wrong" — it's that the strategy depended on a program that no longer exists, and any 2026 project should be budgeted with $0 federal credit as the baseline, not an assumption carried over from 2025 planning.

What's still available in 2026

| Option | Still available? | Notes | |---|---|---| | Federal Section 25C credit | No | Expired for property placed in service after Dec 31, 2025 | | State efficiency rebates and credits | Often yes | Varies significantly by state — check your state energy office | | Utility rebate programs | Often yes | Many utilities run separate rebate programs for heat pumps, insulation, and smart thermostats, independent of federal tax law | | Manufacturer and installer promotions | Sometimes | Not a substitute for a tax credit, but worth asking about directly given the changed federal landscape |

FAQ

Did the solar credit and this credit expire on the exact same date? Yes — both Section 25D (solar/battery) and Section 25C (efficiency improvements) are cut off for expenditures or property placed in service after December 31, 2025, even though they're separate provisions with different structures.

If I already claimed this credit for a 2024 or 2025 improvement, is that affected? No — this only affects new installations placed in service after the cutoff. A credit properly claimed for a completed 2025 (or earlier) improvement isn't retroactively changed.

Does the Energy Efficient Home Improvement Credit carry forward like the solar credit does? No — this credit was generally structured as a non-carrying annual credit even before it expired, which is part of why the two-year timing strategy existed in the first place. Confirm your specific situation with a tax professional if you have an unusual multi-year project that straddled the cutoff.

Are heat pump water heaters treated the same as space-heating heat pumps? Under the prior rules, both fell under the same separate $2,000 annual cap category — but since the credit has expired for 2026 installations, this distinction now only matters for improvements completed by December 31, 2025.

What about home energy audits specifically? Audits fell under this same expired credit, so an audit conducted in 2026 doesn't generate a federal credit — though an audit can still be a worthwhile, independent step for prioritizing efficiency spending regardless of tax treatment. See our home energy audit guide for what to expect.

Fact-checked by Marcus Hale. This article explains general tax rules and is not personalized tax advice — consult a tax professional for your specific situation. Found an error? See our Corrections Policy.