Quick answer
- IRA Section 25C (Energy Efficient Home Improvement Credit) provides federal tax credits for qualifying HVAC upgrades.
- Heat pumps with CEE-listed efficiency tiers qualify — verify your equipment's CEE listing before counting on the credit.
- Credit is taken on your federal income tax return (Form 5695) — your contractor doesn't apply it for you.
- Stack with Dominion Energy SC / Berkeley Electric Coop rebates where eligibility rules allow.
- Heat-pump water heaters have their own credit tier under the same section — separate from HVAC.
What IRA 25C is
Section 25C of the Inflation Reduction Act provides a federal tax credit for qualifying energy efficiency home improvements. It's been extended and expanded multiple times — the current iteration (post-2022) covers HVAC, water heating, insulation, doors and windows, and home energy audits.
Unlike a rebate that reduces your install bill, 25C is a tax credit — it reduces your federal income tax liability dollar-for-dollar when you file your federal return. Different mechanism, same end effect: money back in your pocket.
Which HVAC equipment qualifies
The credit applies to specific efficiency tiers as defined by the Consortium for Energy Efficiency (CEE). For heat pumps, this typically means SEER2 ≥ 16 AND HSPF2 ≥ 8.5 (for the central air south region, which includes SC). Equipment manufacturers publish CEE tier listings — your contractor should provide verification.
- Central air-source heat pumps meeting CEE tier specs (the largest available credit per system).
- Heat-pump water heaters meeting CEE specs (separate credit tier).
- Central AC systems meeting CEE tier specs (smaller credit than heat pumps).
- Natural gas, oil, and propane furnaces meeting AFUE thresholds.
- Whole-home energy audits.
- Insulation, doors, windows (separate annual caps each).
Annual credit limits
The annual credit cap for HVAC under 25C is currently $2,000 per year for heat pumps and heat-pump water heaters (separate $2,000 cap each). Other categories (insulation, windows, audits) have their own smaller caps. Total annual 25C credit is capped at $3,200 per household.
Strategic timing: if you're planning multiple upgrades, splitting them across tax years can let you claim the full credit on each. Discuss with your tax preparer.
How to claim it
Claim 25C on IRS Form 5695 when you file your federal return for the year you installed the equipment. You'll need:
- Install invoice showing date, equipment model numbers, and amount paid.
- Manufacturer certification statement (your contractor provides this).
- Your normal tax filing documents.
We provide a Manufacturer Certification Statement with every 25C-eligible install — keep it with your tax records.
Stacking with utility rebates
25C and utility rebates are independent. Most homeowners can claim BOTH on a single replacement — utility rebate reduces the install bill, federal credit reduces your tax bill. The exceptions are some specific federal HOMES/HEAR rebate programs (different IRA section, not 25C) which may interact with state-level incentives.
For Dominion Energy SC or Berkeley Electric Coop residential rebates + 25C: stack freely.
What to do next
If you're planning an HVAC replacement and want to maximize available incentives, tell us upfront. We'll spec equipment that hits both the utility rebate tier and the 25C CEE tier — and we'll provide the documentation you need at tax time.
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