Many homeowners in New England know that replacing an old, inefficient HVAC system is a big investment. The good news is that federal tax credits can help make these upgrades more affordable and accessible. The Energy Efficient Home Improvement Credit, also known as the 25C tax credit, offers a way to claim a portion of the cost of qualified home improvements, including the installation of a new heat pump system.

This credit, however, is now set to expire on December 31, 2025, a change brought about by recent legislation. This means that if you've been considering an upgrade, this year is your opportunity to take advantage of these savings.

Don't wait to act! Contact Townsend Energy today at (978) 717-0490 or through our online contact form to schedule your heat pump installation and secure your eligibility for the 25C tax credit before the deadline.

What Is the 25C Energy Efficient Home Improvement Credit?

The 25C Energy Efficient Home Improvement Credit is a federal tax credit that helps homeowners reduce the cost of certain energy-efficient improvements made to their homes. This tax credit is non-refundable, which means it can reduce the amount of federal taxes you owe to zero, but you will not receive a refund for any credit amount beyond your tax liability.

For example, if your tax bill is $1,500 and you qualify for a $2,000 credit, you would reduce your tax bill to $0 but would not get a $500 refund. The credit can be claimed for improvements made to your primary residence, but not for new homes or rental properties.

Why is 2025 the Year for a Heat Pump Upgrade?

In recent years, the 25C tax credit was updated and extended to run through the end of 2032. However, a new law has accelerated this deadline, and the credit is now set to expire on December 31, 2025. This means that any qualifying installation or purchase must be completed and placed into service by this date to be eligible. This makes 2025 a critical year for homeowners who want to benefit from these savings before they're gone.

What Qualifies for the 25C Tax Credit?

A wide variety of energy-efficient home improvements can qualify for the 25C credit, with different caps on the amount you can claim. For heat pumps and heat pump water heaters, the credit is worth 30% of the project's total cost, capped at up to $2,000. The great thing about this credit is that you can claim the full amount each year you make eligible improvements. Additionally, you may also be able to get a separate credit for certain electrical upgrades that are needed to support your new heat pump, such as a panelboard or circuit upgrades, with a cap of up to $600.

To qualify for the credit, a heat pump must meet specific energy-efficiency standards set by the Consortium for Energy Efficiency (CEE). Qualifying heat pump systems include:

Air-Source Heat Pumps: These systems provide both heating and cooling by moving heat between the indoor and outdoor air.
Heat Pump Water Heaters: This type of water heater uses heat pump technology to heat water more efficiently than a standard electric water heater.
Hybrid Heat Pump Systems: A hybrid system combines a heat pump with a traditional furnace, allowing you to use the most efficient heating source depending on the outdoor temperature.

It’s important to work with a qualified professional to ensure the system you choose meets all the necessary requirements for the tax credit. Our team can help you select a qualifying system that is right for your home's needs.

How to Claim Your Heat Pump Tax Credit

Once your qualifying heat pump system is installed and paid for, claiming the credit is a straightforward process when you file your federal tax return. You'll need to submit IRS Form 5695, "Residential Energy Credits," along with your tax return for the year the equipment was "placed in service" (meaning, the year it was installed).

While you don't need to submit all your receipts and documentation with your tax return, it’s a good idea to keep them on hand in case of an audit. Your installation invoice and any manufacturer’s certifications or product information will serve as proof of your expenditure and the equipment's eligibility.

Understanding Heat Pumps

If you’re new to the world of heat pumps, you may wonder how they work, especially here in New England. A heat pump transfers heat from one place to another rather than generating it. In the summer, it moves heat from inside your home to the outside, providing cooling. In the winter, it reverses the process, pulling heat from the outdoor air and moving it indoors to keep you warm. This is a very efficient way to heat your home, even in colder climates.

Many people in New England are interested in heat pumps as they are a good option for both heating and cooling in a single system. Heat pumps come in various configurations, including central systems that use ductwork and ductless mini-split systems that are ideal for homes without existing ducts. Both options are great for improving your home’s comfort and can save you money on energy bills in the long run. You can learn more about different types of heat pump systems on our dedicated heat pump and hybrid heat pump pages.

Expert Installation for Lasting Savings

Upgrading to a new, energy-efficient heat pump system is a significant decision. It's an opportunity to improve your home's comfort, reduce your energy bills, and take advantage of valuable financial incentives like the 25C Energy Efficient Home Improvement Credit. To ensure you get the maximum benefit, it’s important to choose a reputable contractor who understands the requirements of the tax credit and can install the right system for your home.

As a local energy contractor serving New England, Townsend Energy is here to help you navigate this process. Our team can help you select a qualifying system and ensure it is installed correctly and efficiently. With the December 31, 2025, deadline quickly approaching, don't miss your chance to act.

Contact us today through our online contact form or give us a call at (978) 717-0490 to get started on your energy-efficient heat pump installation.