If you’ve been putting off that heat pump or water heater upgrade, listen up.
The clock is ticking on some pretty significant federal tax credits that could save you hundreds (or even thousands) of dollars on upgrading your heating, cooling, or water heating equipmenat. And when we say the clock is ticking, we mean it. These credits are going away after December 31, 2025, so if you want to cash in, you need to act now.
Let’s break down what’s happening, what you can still claim, and how to make sure you don’t leave money on the table.
What’s changing (and why you need to know)
Here’s the deal: new federal legislation has accelerated the end date for several energy tax credits. The IRS confirmed in August 2025 that the Energy Efficient Home Improvement Credit (that’s the technical name for Section 25C) won’t be available for equipment installed after December 31, 2025. That means if you want to claim these credits, your new system needs to be up and running by the end of this year. Not just ordered. Not just scheduled. Actually installed and working.
Think of it this way: if your new heat pump or water heater isn’t keeping you cozy (or giving you hot showers) by midnight on New Year’s Eve, you’ve missed your chance at the credit.
What qualifies for the credit in 2025
The good news? There’s still time, and plenty of equipment meets the qualifying criteria. Here’s what you can get credits for if you install by the deadline.
Heat pumps are the big winner here. If you install an air-source heat pump that meets the program requirements, you can claim 30% of the cost, up to $2,000. Heat pumps are great because they handle both heating and cooling, so you’re basically getting two systems in one. And now you can get a nice tax break for going that route.
Gas or oil furnaces also qualify. If you’re installing a high-efficiency furnace, you can claim 30% of the cost, up to $600. Not quite as generous as the heat pump credit, but hey, $600 is still $600.
Central air conditioners get the same treatment as furnaces: 30% of the cost, up to $600, as long as your unit meets the efficiency requirements. This applies to systems purchased and installed between January 1, 2023 and December 31, 2025.
Now let’s talk water heaters. If you go with a traditional natural gas or oil water heater, you can claim 30% of the cost, up to $600, as long as it’s a qualifying high-efficiency model. But if you upgrade to a heat pump water heater, you’re looking at the same sweet deal as heat pump systems: 30% of the cost, up to $2,000. Heat pump water heaters are more efficient and can really cut down your energy bills, so that higher credit makes sense.
One thing to keep in mind: there’s an overall annual cap of $3,200 for all your home energy improvements combined. That breaks down to up to $2,000 for heat pumps and heat pump water heaters, plus up to $1,200 for other stuff like windows, doors, regular AC units, and furnaces. So if you’re planning multiple upgrades, just know you can’t stack credits indefinitely.
The fine print you actually need to know
Okay, this is where things get a little technical, but stick with us because this stuff matters when tax time rolls around.
First, that December 31, 2025 deadline is rock solid. The IRS uses the term “placed in service,” which basically means installed and operational. Signing a contract in November and getting it installed in January won’t cut it. The equipment needs to be working in your home by the end of 2025.
Second, there’s this thing called a manufacturer PIN (product identification number). For 2025, the IRS requires that qualifying equipment be registered by the manufacturer, and you’ll need to provide the PIN when you file your taxes. Your contractor should give you this number, or you can find it on the product label. Make sure you hang onto it along with your receipts and any ENERGY STAR documentation.
Third, and this is important: this credit is non-refundable and doesn’t carry forward. What does that mean in plain English? If you don’t owe enough in taxes to use the full credit, you don’t get the difference back as a refund, and you can’t save it for next year. So if you’re planning a big upgrade, it might make sense to chat with your tax person about whether it makes sense to do it all at once or split it up (if there’s time).
How to actually claim your credit
The process isn’t too complicated, but you do need to keep your ducks in a row. Here’s the game plan.
First, make sure you’re buying qualifying equipment. Not every system qualifies, so before you sign anything, ask your contractor to confirm that what you’re buying meets the ENERGY STAR and efficiency requirements for the tax credit. They should also provide you with that manufacturer PIN we mentioned earlier.
Second, keep everything. And we mean everything. Invoices, model numbers, spec sheets, ENERGY STAR certification, the manufacturer PIN… all of it. You’ll need this documentation when you file your taxes, and you’ll want to keep it with your tax records in case the IRS ever asks questions.
Third, when you file your 2025 tax return (which you’ll do in early 2026), you’ll use IRS Form 5695 to claim the credit. Part II of that form is specifically for the Energy Efficient Home Improvement Credit. The form isn’t complicated, but if you’re not comfortable with tax forms, this is definitely something to go over with your tax preparer.
Your action plan for Orange County homeowners
Look, we get it. It’s easy to put off equipment replacements, especially when everything’s still working “well enough.” But if you’ve been on the fence about upgrading your heating, cooling, or water heating system, this is your moment. Between now and the end of 2025, you can save serious money with these federal tax credits. After December 31st? That opportunity is gone.
Here’s what we recommend: schedule a consultation sooner rather than later.
Even if you’re not 100% sure you want to upgrade, it’s worth having a conversation about what your options are and what the numbers look like with the tax credits factored in. We can walk you through what equipment qualifies, help you understand what you’ll actually pay out of pocket after the credit, and make sure you get everything installed in time to claim it on your 2025 taxes.
Ready to see what you could save? Schedule service with Biard & Crockett, or reach out with any questions you’ve got. We’ve got your back, and we’ll make sure you don’t miss out on these credits while they’re still available.