Reviewed 14 June 2026

Federal 25C Tax Credit for Central AC: Expired 31 December 2025

The federal 25C credit no longer applies to 2026 installs

The One Big Beautiful Bill Act (Public Law 119-21, signed 4 July 2025) terminated the Section 25C Energy Efficient Home Improvement Credit for any property placed in service after 31 December 2025. A central AC or heat pump installed in 2026 does not qualify for the federal credit, even if the equipment was ordered or paid for in 2025. The credit was originally scheduled to run through 2032 under the Inflation Reduction Act; that sunset was pulled forward by five years.

If your system was placed in service on or before 31 December 2025, you can still claim the credit on your 2025 federal return. For everything installed in 2026 and later, the federal credit is gone. State programs and utility rebates are unaffected and remain the path to cutting your net cost. This page explains what the credit covered, who can still claim it, and what to do now.

What 25C covered while it existed (2023 to 2025)

For property placed in service from 1 January 2023 through 31 December 2025, Section 25C gave a non-refundable credit of 30 percent of installed cost, capped per equipment type. These caps applied within a $3,200 annual ceiling that reset each tax year:

Equipment Type	Credit Cap (2023-2025)	Efficiency Threshold
Central AC (split system)	$600	SEER2 16+, EER2 12+ (south)
Central AC (package system)	$600	SEER2 16+, EER2 11+
Air-source heat pump (ducted)	$2,000	SEER2 16+, HSPF2 8.1+
Air-source heat pump (mini split)	$2,000	CEE highest tier
Geothermal heat pump	30% no cap	Section 25D (also ended 31 Dec 2025)
Furnace (gas, propane, oil)	$600	AFUE 97+ (gas), AFUE 87+ (oil)
Heat pump water heater	$2,000	UEF 3.3+

These caps are shown for reference. They apply only to systems placed in service on or before 31 December 2025. There is no 25C credit for 2026 and later installs.

If you installed in 2025: claiming it on your return

A 2025 install that was complete and functional ("placed in service") on or before 31 December 2025 can still be claimed on your 2025 federal return, filed in 2026. You claim it on IRS Form 5695, Residential Energy Credits, Part II (Energy Efficient Home Improvement Credit). Central AC cost goes on the air conditioner line, heat pumps on the heat pump line; the credit flows to Schedule 3 and reduces your federal tax owed.

The qualification rules that applied through 2025 still govern those claims: the matched system (outdoor unit + indoor coil + air handler) had to be listed on the AHRI Directory meeting the efficiency threshold, and for 2025 installs the manufacturer had to be a qualified manufacturer with a reported PIN (QM identification number). Keep the AHRI certificate with your tax records. See the IRS OBBB modification FAQs for the official cutoff guidance.

One thing the cutoff is strict about: buying equipment in 2025 but completing the install in 2026 does not qualify. The date that counts is when the system was placed in service, not when you paid for it.

What still cuts your cost in 2026: state and utility programs

The federal change does not touch state energy credits, utility rebates, or state grant programs. These remain available for 2026 installs and are now the main way to reduce net cost. Most still require a minimum efficiency tier (commonly SEER2 16+ for AC and CEE-tier heat pumps) and an AHRI certificate for the matched system, so efficiency still matters for qualification.

Example (2026): a Massachusetts homeowner installs a $9,000 cold-climate heat pump. Mass Save rebate: up to $6,000. With the federal credit gone, net out-of-pocket is about $3,000 before any utility or income-qualified bonus, rather than the roughly $1,000 the same install would have reached in 2025 with the $2,000 federal credit stacked on top. State programs still do most of the heavy lifting; the federal layer no longer adds to the stack.

Stacking-eligible state programs by region: California TECH Clean California, Massachusetts Mass Save, New York Clean Heat, Maine Efficiency, Vermont Efficiency Vermont, Oregon Energy Trust, Washington Energy Smart, Colorado Xcel Home Energy, Minnesota CARD program. Always confirm a program is active and funded in your area before you sign.

What changed and when

The Inflation Reduction Act of 2022 renewed and expanded Section 25C and set its expiry at the end of 2032. The One Big Beautiful Bill Act, signed 4 July 2025, accelerated that expiry: no 25C credit is allowed for property placed in service after 31 December 2025. The companion residential clean energy credit (Section 25D, which covered geothermal heat pumps and rooftop solar with no dollar cap) was terminated on the same date for expenditures after 31 December 2025.

If a contractor quote or financing plan still assumes a federal 25C credit for a 2026 install, that assumption is out of date. Budget the install on its gross cost less any state and utility rebates you confirm are active, and treat the federal credit as available only for work completed by the end of 2025.

All Rebates and Credits SEER2 Threshold Detail R-454B Refrigerant Transition Net Cost After Rebates MA Mass Save Stack CA TECH Stack

From the portfolio: solar panel install cost (the Section 25D solar credit also ended 31 December 2025).

Frequently Asked Questions

Is the Section 25C tax credit still available in 2026?

No. The One Big Beautiful Bill Act (Public Law 119-21, signed 4 July 2025) terminated the Section 25C Energy Efficient Home Improvement Credit for any property placed in service after 31 December 2025. A central AC or heat pump installed in 2026 does not qualify for the federal credit, even if you ordered or paid for it in 2025. The credit was originally scheduled to run through 2032 under the Inflation Reduction Act, but that sunset was pulled forward.

What did the 25C credit cover while it existed?

For property placed in service from 2023 through 31 December 2025, Section 25C gave a non-refundable credit of 30 percent of installed cost, capped per equipment type: $600 for qualifying central AC and $2,000 for qualifying heat pumps, within a $3,200 annual ceiling. It was a tax credit (claimed on IRS Form 5695), not a point-of-sale rebate.

I installed my system in 2025. Can I still claim it?

Yes, if the system was placed in service on or before 31 December 2025 and met the efficiency and AHRI requirements. 'Placed in service' means the install was complete and the system functional by year-end 2025. You claim it on IRS Form 5695 with your 2025 federal return (filed in 2026). Buying equipment in 2025 but completing the install in 2026 does not qualify.

Are there still federal incentives for a 2026 AC or heat pump install?

Not through Section 25C. The geothermal heat pump credit under Section 25D also ended for property placed in service after 31 December 2025. What remains for 2026 installs are state programs and utility rebates, which are unaffected by the federal change. Many states still run generous heat pump rebates (Mass Save, NY Clean Heat, California TECH, Efficiency Maine) and most large utilities offer SEER2-tier AC and heat pump rebates.

Why does efficiency still matter if the credit is gone?

Two reasons. First, most state and utility rebate programs still require a minimum efficiency tier (commonly SEER2 16+ for AC and CEE-tier heat pumps), so the same AHRI-certified thresholds that governed 25C still gate those rebates. Second, higher SEER2 lowers your operating cost for the life of the system. The federal credit is gone, but efficiency still pays back through rebates and lower bills.

Did the heat pump's $2,000 advantage over AC disappear too?

The federal portion of it did. While 25C was live, a qualifying heat pump earned up to $2,000 versus $600 for central AC, a $1,400 federal swing. For 2026 installs that federal gap is gone. Heat pumps can still net out cheaper than AC in states with strong heat-pump rebates (Massachusetts, New York, California, Maine), but the math now rests on state and utility programs, not the federal credit.