Section 25C — the Energy Efficient Home Improvement Credit — was the federal tax credit most heat-pump buyers used between 2023 and 2025. Expanded by the Inflation Reduction Act effective January 1, 2023, it paid 30% of a project's cost (equipment plus labor) up to $2,000 for a qualifying air-source heat pump, with no income limit and the ability to claim again in a later year on a different project.
The catch was always the efficiency bar: the unit had to meet the highest CEE (Consortium for Energy Efficiency) tier in effect at the start of the install year — a level above the federal minimum and above plain ENERGY STAR. A good variable-capacity heat pump could reach it, but the contractor had to confirm the specific AHRI-matched system qualified, and for 2025 installs the manufacturer had to supply a product identification number reported on the return.
That credit is now gone. The One Big Beautiful Bill Act of 2025 (OBBBA, Public Law 119-21) terminated Section 25C for property placed in service after December 31, 2025 — the IRS states the credit 'will not be allowed for any property placed in service after December 31, 2025.' The trigger is the placed-in-service date, not the purchase date: a heat pump installed and operating by December 31, 2025 still qualifies on the 2025 return, while the same equipment switched on in January 2026 does not. The separate Section 25D credit, which covered ground-source geothermal heat pumps at an uncapped 30%, ended on the same date.
For a 2026 buyer the practical effect is up to $2,000 less federal benefit on a high-efficiency install (much more on geothermal, which loses the uncapped 25D credit). The replacement is not a tax credit but a rebate: the income-qualified Home Electrification and Appliance Rebate (HEAR) survived OBBBA and pays up to $8,000 toward a heat pump for eligible households, and utility rebates (SRP Cool Cash and TEP Efficient Home in Arizona; Austin Energy, CPS Energy SaveNow, Oncor, and AEP Texas in Texas) remain in place. Consult a tax professional about any install near the December 31, 2025 boundary, since placed-in-service timing controls eligibility.