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25C Tax Credit 

What is the 25C Tax Credit?

The 25C tax credit incentivizes household electrification by lowering the total cost of qualified electrification upgrades. 25C provides a capped 30 percent tax credit for heat pumps, heat pump water heaters (HPWHs), qualifying electrical panel upgrades, select weatherization measures, and energy audits.

For the first time, air source heat pumps for space heating/cooling and HPWHs will be eligible for a tax credit of up to $2,000 per year, and electrical panel upgrades installed in conjunction with a heat pump or HPWH will be eligible for a tax credit of up to $600.

Key Details for the 25C Residential Energy Efficiency Tax Credit: 

  • The new version of 25C starts in 2023
  • 30 percent capped tax credit for residential efficiency and electrification upgrades, up to $3,200 per year (see chart)
  • Annual total credit for heat pumps and heat pump water heaters capped at $2,000
  • Annual total credit for other upgrades capped at $1,200; limits per upgrade may apply
  • Covers purchase and installation costs
  • Qualifying upgrades subject to efficiency requirements
  • Up to $600 for electrical panel upgrades if they are installed in conjunction with and enable a heat pump or HPWH
  • Credit limit is annual (not lifetime), so it resets each year and can be used again
  • Nonrefundable, so households must have adequate tax liability to offset

Frequently Asked Questions

Will 25C reduce up-front costs for consumers?

No, but they will reduce total costs.

Who qualifies for 25C?

Anyone with adequate tax liability to offset can qualify
for 25C.

Which tax credits cover which heat pumps?

25C covers air-source heat pumps.

Can renters utilize 25C?

Yes! Renters may be specifically interested in the 25C
credit for portable, window-unit heat pumps. geothermal heat pumps.

Does 25C have efficiency requirements?

Yes. 25C is applicable only to heat pumps and HPWHs
that meet the Consortium for Energy Efficiency’s highest
non-”advanced” tier. ENERGY STAR-certified doors and
ENERGY STAR Most Efficient-certified windows also are
eligible

What does it mean that 25C resets every year?

By resetting every year, 25C will be available to households
for multiple upgrades over multiple years. For example, if a
household maxes out 25C in one year by claiming a $2,000
credit for a heat pump and a $1,200 credit for insulation,
that household can utilize 25C again in a future year for a
HPWH and an electrical panel upgrade.

Can 25C stack with other incentives?

Yes! 25C can stack with other federal incentives
like the HEEHR and HOMES rebates.

Do smart panels qualify for 25C?

25C has no statutory panel requirements, so smart panels
should qualify.

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