Section 25C — the Energy Efficient Home Improvement Credit — was a federal income tax credit for high-efficiency residential heating equipment and building-envelope upgrades. Originally enacted in the Energy Policy Act of 2005, it was expanded by the Inflation Reduction Act of 2022 (IRA), effective for property placed in service starting January 1, 2023. The IRA version paid 30% of project cost up to category caps, with no income limit and no lifetime cap, so a homeowner could claim it in multiple years on different projects.
For furnaces, the relevant cap was $600 for a qualifying high-efficiency gas, oil, or propane furnace or boiler meeting the highest CEE tier in effect at the start of the install year — in practice a gas furnace at roughly 97% AFUE or better. This was a separate cap from the $2,000 heat-pump credit and the $1,200 cap covering insulation, windows, doors, and panel upgrades. The credit attached to the new qualifying equipment in a replacement: swapping an aging 80% furnace for a 97%+ AFUE condensing unit could earn it, while a repair of the existing furnace — a new heat exchanger, gas valve, igniter, or control board — never did, no matter how efficient the furnace was. The credit was non-refundable, so it could zero out tax owed but not produce a refund on its own.
The One Big Beautiful Bill Act of 2025 (OBBBA, Public Law 119-21) repealed Section 25C effective December 31, 2025. A qualifying furnace placed in service on or before that date still qualifies under the prior rules and is claimed on the 2025 return; a furnace installed on or after January 1, 2026 receives no federal credit. The repeal did not touch utility or state rebates, which remain the primary incentive layer for high-efficiency furnace replacements in 2026 and beyond.
For a 2026 homeowner planning a furnace replacement, the practical effect is up to $600 less federal tax benefit on a qualifying high-efficiency install than the same project would have earned in 2025. Gas-utility programs (Atmos Energy's Mid-Tex furnace rebate in Texas and similar offers elsewhere) typically pay a few hundred dollars on a high-efficiency furnace install and are now the main way to offset the upgrade cost over a standard 80% unit. Consult a tax professional before claiming any credit on an install close to the Dec 31, 2025 boundary — placed-in-service date, not purchase date, controls eligibility.