Section 25C — formally the Energy Efficient Home Improvement Credit — was a federal income tax credit for high-efficiency residential HVAC and building-envelope upgrades. Originally enacted in the Energy Policy Act of 2005, it was expanded substantially by the Inflation Reduction Act of 2022 (IRA), effective for property placed in service starting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 — a homeowner could claim it every year, on different qualifying projects.
The credit was tiered by equipment type. The largest single cap was $2,000 for a qualifying heat pump (air-source, geothermal, or water-source) meeting the highest CEE tier in effect at the start of the install year — typically ENERGY STAR Most Efficient or above. A separate $600 cap covered central air conditioners, gas / oil / propane furnaces, and boilers. Other qualifying improvements (insulation, windows, doors, panel upgrades) shared a $1,200 annual cap. A $150 credit was available once per year for a professional home energy audit. The credit was non-refundable — it could zero out tax owed but not generate a refund check on its own.
The One Big Beautiful Bill Act of 2025 (OBBBA, Public Law 119-21), signed in mid-2025, repealed Section 25C effective December 31, 2025. Property placed in service on or before that date still qualifies under the prior rules and gets claimed on the 2025 return; installs on or after January 1, 2026 receive no federal credit. The repeal also ended the parallel Section 25D residential clean energy credit for property installed after Dec 31, 2025 (subject to a separate phasedown for solar). Utility and state rebates were unaffected by the repeal and remain the primary post-2025 incentive layer for HVAC upgrades.
For someone installing in 2026 or later, the practical effect is roughly $600 to $2,000 less of federal tax benefit on a qualifying high-efficiency install. Utility rebates (SRP Cool Cash in Arizona, CPS STEP in Texas, Austin Energy Power Saver, and similar programs across the country) typically pay $200 to $1,200 on the same equipment tiers — meaningful but not a full replacement. The compounding effect of losing the federal credit + the R-454B refrigerant transition (mandatory on new split systems installed after Jan 1, 2026) has pushed typical high-efficiency project costs roughly 10–15% higher year over year. 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.