Section 25C — the Energy Efficient Home Improvement Credit — was the federal tax credit most ductless mini-split 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 heat pump. An air-source ductless mini-split heat pump counted as a heat pump, so a homeowner could claim up to the full $2,000 on a qualifying install, 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 inverter mini-split could reach it, but the contractor had to confirm the specific 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 mini-split that was installed and operating by December 31, 2025 still qualifies on the 2025 return, while the same equipment switched on in January 2026 does not. OBBBA likewise ended the separate Section 25D credit, which in any case only ever covered ground-source geothermal heat pumps, not air-source mini-splits.
For a 2026 ductless buyer the practical effect is up to $2,000 less federal benefit on a high-efficiency install. 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 and CPS Energy SaveNow 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.