Homeowners and renters making upgrades to their existing home

Homeowners can use this tax credit for heat pump water heater projects at homes that are already built. Homeowners can use this tax credit for primary and secondary homes.

Renters are also eligible to use this tax credit. 

For more information, see Frequently asked questions about energy efficient home improvements and residential clean energy property credits.

To learn about credits for new homes, see Section 45L New Energy Efficient Home Credit, which offers incentives for Zero Energy Ready homes.

No income requirements 

There are no income limitations for the 25C Tax Credit — but like nearly all federal tax credits, you can only use it if you pay federal income taxes, and the amount you can receive is limited by the amount of federal income tax you pay in a year.

Determining machine eligibility is the most complicated part of using the heat pump tax credit. Before shopping around, confirm with your contractor that a heat pump is the right choice for you. If it is, confirm with your contractor whether a qualifying heat pump makes sense for your home. 

The 25C tax credit is designed to encourage Americans to purchase high-efficiency equipment. Specifically, eligible heat pumps must meet or exceed the highest efficiency tier (not including any advanced tiers) established by the Consortium for Energy Efficiency (CEE). 

Efficiency standards and ratings can be difficult to evaluate yourself, so ask your contractor if your project qualifies for the 25C tax credit. Some manufacturer websites list tax credit-eligible equipment, as does the ENERGY STAR Product Finder. For the most comprehensive list of qualifying heat pump models, see CEE’s directory. 

One piece of good news: the IRS has said that to claim the credit, you can rely on the manufacturer’s written certification that a product qualifies. So if the manufacturer's website lists a certain heat pump as eligible for 25C, that’s all you need! Make sure you screenshot it and keep it for your records. 

For more on the efficiency requirements of other purchases, see this IRS FAQ.

Here are all the steps you need to take to save on your new heat pump. 

1. Keep track of (or track down) the invoice from your contractor. 

2. Fill out IRS Form 5695, Residential Energy Credits. For instructions on how to fill out the form, including more in-depth information about individual amounts you can claim, see the IRS’s Instructions for Form 5695.

3. Submit the form along with your annual tax return. 

4. Enjoy your lower tax bill or bigger refund with your qualifying high-efficiency heat pump!

You can claim the standard deduction to claim the 25C tax credit. You don't have to itemize.

You can only apply for and claim the 25C tax credit for energy upgrades in the year in which a project is completed. For example: if you purchased your equipment in late 2023 but had it installed in 2024, you have to file the tax credit with your 2024 tax return.