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How to File Your Federal Heat Pump Tax Credit (25C – Energy Efficient Home Improvement Credit)

Is there a federal tax deduction for heat pumps? Yes! The 25C tax credit, under the Inflation Reduction Act, offers substantial benefits for individuals investing in heat pump systems, heat pump water heaters, electrical panel upgrades, select weatherization measures, and energy audits – including you, our customers! How do you qualify for the Inflation Reduction Act heat pump tax credit? Simply install and file the following year to receive the federal tax credit for your heat pump.

Notably:

  • Value: Get a 30% federal tax credit on the total cost of air source heat pumps and heat pump water heaters—capped at $2,000. Other energy-efficient upgrades are eligible for up to $1,200, and if you install an electrical panel upgrade alongside a heat pump or heat pump water heater, you can claim an additional $600.
  • Installation Deadline: To qualify for the federal heat pump tax credit in a given tax year, your heat pump must have a SEER2 rating of 16 or higher and be installed within that year—no need to search, “What SEER rating do I need for tax credit qualification?”
    • For the 2024 tax year, your heat pump or heat pump water heater must be installed by December 31, 2024. The credit resets annually, meaning you can claim it again in future years if you make additional eligible upgrades.
  • Property Requirements: Equipment must be installed in an existing home and your principal residence (the place you occupy most of the time). New construction and rentals do not apply for federal tax credits for heat pump installations, including federal tax credits for heat pump water heaters, too. The principal residence must be in the United States and may be a house, houseboat, mobile home, cooperative apartment, condominium, or a manufactured home to qualify.
    • Business use of the home:
        • Up to 20% business use: Full credit available.
        • More than 20% business use: Credit is proportional to non-business use.
  • Example: For instance, if your federal tax liability amounts to $3,000 and you qualify for the maximum $2,000 credit, your owed taxes decrease to $1,000 after applying the credit.
    25c Heat Pump Tax Credit

Energy Efficiency

Energy Efficiency investments qualify for the Energy Efficiency tax credit.

  • This credit is 30% of the project cost up to a maximum of credit value of $1,200
  • Upgrades that qualify:
    • Attic Insulation
    • Basement / crawlspace insulation

Home Energy Audits

A home energy audit for your main home may qualify for a tax credit of up to $150. In order to qualify, the home energy audit must:

  • Include a written report and inspection that identifies the most significant and cost-effective energy efficiency improvements with respect to the home, including an estimate of the energy and cost savings with respect to such improvement.
  • Be conducted and prepared by a home energy auditor

Disclaimer: While we provide guidance, it’s crucial to seek advice from a tax professional regarding individual tax situations. Our presentation doesn’t assume liability for your specific tax circumstances.

Wondering how much this will cost you with rebates and tax incentives included?

How to Claim / File for the Heat Pump Tax Credit:

  • IRS Form 5695: Complete this form (specifically Part Two: Energy Efficient Home Improvement Credit) to outline your eligibility for the heat pump tax credit.
  • Fill out your Name, Social Security Number, and your main home’s address. 
    • PART I: ​​Residential Clean Energy Credit (this applies to you if you’ve installed solar, wind energy, geothermal heat pumps, or battery storage).
      Form 5695 Residential Energy Tax Credits
    • PART II: Energy Efficient Home Improvement Credit (this applies to you if you’ve completed weatherization, electrical panel upgrades, or installed heat pumps or heat pump water heaters.)
      • Continue filling out lines 17 through 32.
      • In Section A Line 18, enter the total invoice amount for insulation and air sealing. 
      • In Section B Line 25ab, enter the total invoice amount for electrical panel upgrades. 
      • In Section B Line 29abc, enter the total invoice amount for heat pumps and/or heat pump water heaters.
        Section A - Qualified Energy Efficiency Improvements
        Section B - Residential Energy Property Expenditures
  1. Integration with Form 1040: Add the relevant tax credit details to your standard Form 1040 during the tax filing process.
  2. Submission: Ensure Form 5695 is included when filing your taxes to claim the credit accurately.

MORE DETAILED INSTRUCTIONS ON FILLING OUT THE FORM HERE.
MORE INFO HERE.

And once again, thank you for being a part of the Elephant Energy Herd! We couldn’t be where we are without wonderful customers like yourselves. And in return, we’re here for you – before, during, and after your Climate-Friendly Home Upgrade.