IRA Section 25C (Energy Efficient Home Improvement Credit) is a federal tax credit for qualifying energy-efficient home improvements, expanded under the 2022 Inflation Reduction Act. It covers HVAC equipment, water heating, insulation, windows, doors, and home energy audits.
For HVAC, the credit applies to heat pumps and heat-pump water heaters that meet specific CEE (Consortium for Energy Efficiency) efficiency tier listings, and to natural-gas furnaces meeting AFUE thresholds. Current annual cap for heat pumps and heat-pump water heaters is $2,000 each; total annual 25C cap is $3,200.
The credit is claimed on IRS Form 5695 when filing your federal return for the install year — your contractor doesn't apply it directly. You'll need the manufacturer certification statement (which your contractor should provide) plus your install invoice.
25C is independent of utility rebates — both can be claimed on the same equipment.
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