What is the Energy Efficient Home Improvement Credit?

The Energy Efficient Home Improvement Credit (Section 25C of the tax code) is a federal tax credit that gives homeowners 30% back on qualifying energy-efficient upgrades to their primary or secondary residence. The maximum credit is $3,200 per year — with separate annual caps per category: $2,000 for heat pumps and water heaters, $1,200 for insulation and air sealing, $600 for windows, and $500 for doors. No income limit applies.

How do I claim the Energy Efficient Home Improvement Credit?

Claim the Energy Efficient Home Improvement Credit on IRS Form 5695 (Residential Energy Credits), Part II. File it with your annual Form 1040 tax return. You need purchase receipts and manufacturer certification statements. No pre-approval is required — purchase and install the qualifying product, keep your documentation, and claim at tax filing time.

Is the Energy Efficient Home Improvement Credit the same as the 25C credit?

Yes — the Energy Efficient Home Improvement Credit is the official name for the Section 25C tax credit, often called just the "25C credit." It was significantly expanded by the Inflation Reduction Act of 2022, increasing the credit rate from 10% to 30% and raising annual caps. The credit runs at 30% through 2032, then steps down to 26% (2033) and 22% (2034).

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Section 25C · 30% Credit · Up to $3,200/Year · No Income Limit · Through 2032

Energy Efficient Home Improvement Credit 2026–2027

The Energy Efficient Home Improvement Credit (Section 25C) gives all homeowners 30% back on qualifying upgrades — up to $3,200 per year with separate caps per category. Heat pumps, insulation, windows, doors, water heaters, and home audits all qualify. No income limit.

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30%

Credit rate on all categories

$3,200

Max per year (all categories)

No limit

Income requirement

2032

Current rate locked through

5 Steps to Claim the Credit

Purchase a qualifying product

Buy an ENERGY STAR certified product meeting the specific efficiency requirements for the 25C credit category. Get the manufacturer certification statement confirming qualification.

Keep all documentation

Save your purchase receipts, contractor invoices (if professionally installed), and the manufacturer certification statement. You don't submit these with your tax return but need them if audited.

Complete IRS Form 5695

Fill out Part II of Form 5695 (Residential Energy Credits). Enter costs by category — heat pumps, insulation, windows, doors, audit. The form calculates your credit.

Apply credit on Form 1040

Transfer the credit amount from Form 5695 to Schedule 3 of your Form 1040. The credit reduces your tax liability dollar-for-dollar up to zero (nonrefundable).

Plan for next year

The annual caps reset each tax year. If you claimed heat pump credit this year, you can claim insulation or window credits next year under their separate caps.

Every Category, Cap & Requirement

All categories have separate annual caps — you can claim multiple in the same year. IRS Form 5695, Part II.

Category	Form Line	Annual Cap	Key Requirement
Air-Source Heat Pumps Shared cap with: Heat pump water heaters	Line 19a	$2,000	ENERGY STAR + 16+ SEER2 + 9.1+ HSPF2
Heat Pump Water Heaters Shared cap with: Air-source heat pumps	Line 19a	$2,000	ENERGY STAR + UEF ≥ 2.2
Central Air Conditioners Shared cap with: Separate cap	Line 19a	$600	ENERGY STAR Most Efficient
Natural Gas Furnaces Shared cap with: Separate cap	Line 19a	$600	ENERGY STAR + 97%+ AFUE
Oil Furnaces / Boilers Shared cap with: Separate cap	Line 19a	$600	ENERGY STAR certified
Electric Panel Upgrades Shared cap with: Separate cap	Line 19a	$600	Must be for qualifying electrification
Insulation Materials Shared cap with: Air sealing	Line 19b	$1,200	Meets IECC standards for climate zone
Air Sealing Materials Shared cap with: Insulation	Line 19b	$1,200	Meets IECC air sealing standards
Windows & Skylights Shared cap with: Separate cap	Line 19c	$600	ENERGY STAR Most Efficient for climate zone
Exterior Doors Shared cap with: Separate cap	Line 19d	$500 ($250/door)	ENERGY STAR certified
Home Energy Audits Shared cap with: Separate cap	Line 19e	$150	Certified auditor + written report

6 Mistakes That Cost Homeowners Money

✗ Buying the wrong efficiency tier

✓ Fix:

For heat pumps: verify SEER2 ≥16 AND HSPF2 ≥9.1 — basic ENERGY STAR may not meet the 25C threshold. Get the manufacturer certification statement before buying.

✗ Not splitting projects across tax years

✓ Fix:

Install insulation in December, windows in January — two separate $600 credits vs one. Annual caps reset Jan 1.

✗ Forgetting the energy audit credit

✓ Fix:

$150 credit for a certified home energy audit is separate from all other caps. Get an audit any year you're doing improvements.

✗ Assuming rental properties qualify

✓ Fix:

25C is for primary or secondary residences only. Rental properties you don't live in do not qualify.

✗ Missing the manufacturer certification

✓ Fix:

Keep the product certification statement from the manufacturer. You don't file it but need it for audits. Available at manufacturer website or with purchase.

✗ Expecting a refund from a nonrefundable credit

✓ Fix:

25C can reduce your tax bill to zero but won't generate a refund. Plan projects in years with higher tax liability for maximum benefit.

FAQ — Energy Efficient Home Improvement Credit

What is the difference between the 25C and 25D credit?

The 25C credit (Energy Efficient Home Improvement Credit) covers improvements to an existing home — heat pumps, insulation, windows, etc. — at 30% with annual caps up to $3,200. The 25D credit (Residential Clean Energy Credit) covers clean energy equipment — solar panels, battery storage, geothermal — at 30% with NO annual cap. Both are on Form 5695 but in different parts (Part I for 25D, Part II for 25C).

Can a second home or vacation home qualify?

Yes — the 25C credit applies to both your primary residence and one secondary residence (vacation home). The property must be a home you own and use, not a rental. If you use a home both personally and as a rental, you may need to prorate the credit based on personal use days. Consult a tax professional for mixed-use properties.

Do I need receipts or special forms to claim the credit?

You don't attach receipts to your tax return. However, keep all purchase receipts, contractor invoices, and manufacturer certification statements for at least 3 years in case of audit. The manufacturer certification statement is a document from the manufacturer (available on their website or at purchase) confirming the product qualifies for the 25C credit.

Can I claim the credit for the same type of product in multiple years?

Yes — the annual caps reset every January 1. You can claim up to $2,000 for a heat pump in 2026 and another $2,000 for a heat pump water heater in 2027 — separate tax years, separate credits. Many homeowners do multi-year home efficiency projects specifically to maximize annual credits year after year through 2032.

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This guide is for educational purposes only and does not constitute tax advice. Consult a tax professional for your specific situation. Always verify with IRS.gov (Form 5695) before claiming. Data verified July 2026.

Energy Efficient Home Improvement Credit 2026–2027

5 Steps to Claim the Credit

Every Category, Cap & Requirement

6 Mistakes That Cost Homeowners Money

FAQ — Energy Efficient Home Improvement Credit

Calculate your Energy Efficient Home Improvement Credit

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