If you’ve been putting off replacing that old furnace, outdated water heater, or clunky AC unit, now’s the time to pull the trigger. Why? We’ve got homeowners who could save hundreds – even thousands – of dollars on new heating, cooling, and water heating equipment…But!
There’s a catch: these federal tax credits are ending on December 31, 2025. No extensions, no do-overs.
Let’s break down what you need to know so you don’t miss out.
What’s changing with these tax credits?
Back in August 2025, the IRS issued guidance confirming that two major energy tax credit programs are wrapping up at the end of this year. The Energy Efficient Home Improvement Credit (that’s the official name for Section 25C) won’t be available for equipment installed after December 31, 2025. Translation? Your new heat pump, furnace, AC, or water heater needs to be up and running by New Year’s Eve to qualify.
This isn’t about when you pay for it or when you order it – it has to be installed and working by the deadline.
How much money are we talking about?
This is the fun part – the credits are actually pretty generous for 2025 installations:
Heat pumps top the list at 30% of the cost, up to $2,000. Heat pumps are awesome because they handle both heating and cooling, so you’re basically upgrading your whole comfort system in one shot. Plus they’re super efficient, which means lower energy bills month after month.
Gas or oil furnaces can get you 30% back, up to $600, as long as you choose a high-efficiency model that meets the program requirements.
Central air conditioners also qualify for 30% back, up to $600. If your AC is more than 10-15 years old, a new unit will cool your home better and cost way less to run – and now you get a nice tax break on top of it.
Water heaters come in two flavors for the credit. Regular natural gas or oil water heaters qualify for 30% back (up to $600) if they’re high-efficiency models. But heat pump water heaters get the bigger credit – 30% back, up to $2,000. Heat pump water heaters use way less energy than traditional models, so they’re a smart long-term investment.
There’s an overall annual cap to keep in mind: you can claim up to $3,200 total per year under this program. That breaks down to $2,000 max for heat pumps and heat pump water heaters, plus up to $1,200 for other improvements like windows, doors, regular AC units, and furnaces.
The fine print you actually need to know
Okay, so here’s the deal with making sure you actually get the credit. First, your equipment has to be “placed in service” by December 31, 2025. That’s IRS-speak for “installed and operational.” Just buying the equipment or signing a contract doesn’t cut it – it needs to be in your home, hooked up, and working.
Second, for 2025, the IRS requires something called a manufacturer PIN (Product Identification Number). This is basically proof that your equipment qualifies for the credit. Your contractor should provide this to you along with your invoice. Don’t lose it! You’ll need it when you file your taxes.
Third, this credit is “non-refundable,” which sounds confusing but just means if the credit is bigger than what you owe in taxes, you don’t get the extra back as a refund. You also can’t roll it over to next year. So it only helps if you have tax liability to offset. Talk to your tax preparer if you’re not sure how this works for your situation.
How to actually claim your credit
The process is pretty straightforward. When you get your new heating or cooling equipment installed by Gilman (or any contractor), make sure they confirm the equipment qualifies and give you the manufacturer PIN. Keep your invoice, the model numbers, any ENERGY STAR documentation, and that PIN with your tax records.
Then when you file your 2025 taxes in 2026, you’ll fill out IRS Form 5695. It’s specifically for energy credits, and Part II covers these home improvement credits. Your tax preparer will know what to do, or if you’re a DIY tax filer, the form has instructions that walk you through it step by step.
What happens in 2026?
Right now, the IRS has confirmed these tax credits for heating, cooling, and water heating equipment end after 2025. There might be state or utility rebates available in the future, but as far as federal tax credits go, this is your last chance. So if you’ve been on the fence, this is basically the universe telling you to go for it.
Your next step
Whether you’re ready to schedule a replacement or you just have questions about what equipment qualifies, we’re here to help.
At Gilman, we’ve been serving homeowners since 1917. We can help you choose qualifying equipment, make sure you get your manufacturer PIN, and get everything installed before the deadline.
Don’t let these tax credits slip away! Reach out to us today, online or at 804-207-3881, to schedule service or ask any questions you might have.
