HVAC Tax Credits and Rebates in 2026

Federal 25C Tax Credit for HVAC Equipment

The Energy Efficient Home Improvement Credit (Section 25C of the Internal Revenue Code) provides a tax credit for qualifying high-efficiency HVAC equipment installed in your primary residence. This credit was expanded and extended by the Inflation Reduction Act and is available through at least 2032.

Credit amounts. Heat pumps, heat pump water heaters, and biomass stoves qualify for a credit of up to $2,000 per year. Central air conditioners, gas furnaces, and boilers qualify for a credit of up to $600 per item, with a combined annual cap of $1,200 for these non-heat-pump items. The $2,000 heat pump credit and the $1,200 cap for other equipment are separate, so a homeowner who installs both a heat pump and a furnace in the same year could potentially claim up to $3,200 in credits.

Efficiency requirements. Equipment must meet specific efficiency thresholds to qualify. For 2026, central air conditioners must meet the CEE highest efficiency tier. Heat pumps must meet the ENERGY STAR standard or the CEE highest tier. Gas furnaces must have an AFUE of 97% or higher. These requirements are adjusted periodically, so confirm the current thresholds at the time of purchase. Your contractor should know which of their proposed models qualify, and the ENERGY STAR website maintains a searchable database of qualifying equipment.

How to claim it. The 25C credit is claimed on your federal income tax return using IRS Form 5695 (Residential Energy Credits). You need the Manufacturer Certification Statement for the installed equipment, which your contractor or the manufacturer can provide. The credit reduces your tax liability dollar-for-dollar, but it is non-refundable, meaning it can reduce your tax bill to zero but will not generate a refund beyond what you already owe. If your tax liability for the year is less than the credit amount, you lose the unused portion (it does not carry forward).

Important limitations. The property must be your primary residence (not a rental property or second home). The credit is per household per year, not per system or per person. New construction does not qualify for 25C, only improvements to existing homes. The credit applies to the equipment cost only, not the installation labor, though some related items like the home energy audit credit ($150) are separate.

Inflation Reduction Act Rebate Programs

The Inflation Reduction Act created two rebate programs administered by individual states. These are point-of-sale rebates (applied at the time of purchase) rather than tax credits claimed later on your return. Availability and implementation vary by state because each state administers its own version of these federal programs.

High-Efficiency Electric Home Rebate Act (HEEHRA)

HEEHRA provides rebates for electrification upgrades, including heat pumps. The rebate amounts depend on household income relative to your area median income (AMI).

Low-income households (below 80% AMI) qualify for rebates covering up to 100% of project costs, up to $8,000 for a heat pump HVAC system, $1,750 for a heat pump water heater, and $4,000 for an electrical panel upgrade (often needed when converting from gas to electric). Moderate-income households (80% to 150% AMI) qualify for rebates covering up to 50% of project costs, with the same maximum dollar amounts. Households above 150% AMI do not qualify for HEEHRA rebates.

HEEHRA rebates are available for heat pump systems only, not for gas furnaces or conventional air conditioners. The program is designed specifically to incentivize electrification. State rollout timelines vary, and not all states have launched their programs yet. Check your state energy office or the Department of Energy's website for current availability in your area.

HOMES (Home Owner Managing Energy Savings) Rebate Program

The HOMES program provides rebates based on measured or modeled energy savings from whole-home efficiency improvements. Rebate amounts are tied to the percentage of energy savings achieved.

For households below 80% AMI, rebates cover up to 80% of project costs with a maximum of $8,000. For all other households, rebates cover up to 50% of project costs with a maximum of $4,000. The project must achieve at least 20% modeled energy savings (or 35% for the higher rebate tier) to qualify.

The HOMES program covers a broader range of improvements than HEEHRA, including insulation, air sealing, and HVAC upgrades of any fuel type. However, the energy savings modeling requirement makes this program more complex to use. Your contractor or a participating energy auditor can help determine whether your planned project qualifies.

State and Local Incentives

Many states, counties, and municipalities offer their own rebate programs for high-efficiency HVAC equipment. These programs vary widely in availability, amount, and qualifying requirements.

State energy office programs. Some states offer direct rebates for heat pumps, high-efficiency furnaces, or air conditioners. Amounts typically range from $250 to $1,500 depending on the state and equipment type. These state rebates can often be combined with the federal 25C tax credit, effectively stacking the savings.

Utility company rebates. Electric and gas utilities frequently offer rebates for high-efficiency HVAC equipment as part of their demand-side management programs. Utility rebates typically range from $100 to $1,000 and are available to customers of that specific utility. Check your electric and gas utility websites for current programs. These rebates change frequently, with programs launching and expiring throughout the year.

How to find local incentives. The Database of State Incentives for Renewables and Efficiency (DSIRE) at dsireusa.org is the most comprehensive directory of state and local energy incentives. Enter your zip code to see all available programs. Your HVAC contractor may also be aware of local programs, particularly utility rebates that they help customers claim regularly.

Stacking Credits and Rebates

In many cases, you can combine multiple incentives on the same project. The federal 25C tax credit can generally be combined with state rebates and utility rebates because they come from different sources. However, IRA rebates (HEEHRA and HOMES) have specific stacking rules that vary by state.

Example scenario for a heat pump installation. A moderate-income homeowner installs a qualifying heat pump system for $12,000 total. They could potentially receive a $2,000 federal 25C tax credit, a $4,000 HEEHRA rebate (50% of cost, capped at $8,000), and a $500 utility rebate. The combined incentives of $6,500 would reduce the net cost to $5,500. This is an illustrative example, and actual available incentives depend on your specific location, income, and the equipment installed.

Important considerations when stacking. Some programs reduce the eligible cost basis when other incentives are applied. For example, if you receive a $4,000 HEEHRA rebate on a $12,000 project, some programs may calculate additional incentives based on the remaining $8,000 rather than the original $12,000. Read the fine print of each program you plan to use, and ask your contractor or a tax professional if you are unsure how multiple incentives interact.

Timing Your Purchase Around Incentives

Several timing factors affect your ability to maximize incentives.

Federal tax credit timing. The 25C credit applies to the tax year in which the equipment is installed and placed in service. If you install a system in December 2026, you claim the credit on your 2026 tax return. If you need the credit to offset a larger tax liability, coordinate the installation timing with your tax situation. Remember that the credit resets annually, so if you have a large project, splitting it across two calendar years could allow you to claim two years of credits.

IRA rebate availability. Since states are rolling out HEEHRA and HOMES programs on different timelines, the rebates available to you today may be different from what will be available in six months. If your state has not launched its program yet, you may want to wait if the potential rebate amount is significant enough to justify delaying the project. Conversely, if programs are available now, rebate funds are allocated on a first-come, first-served basis and may run out.

Utility program cycles. Utility rebate programs often operate on annual budget cycles and may exhaust their funding before the year ends. If a utility rebate is a significant part of your savings plan, apply early in the program year. Some utilities require pre-approval before the equipment is installed, so check the application requirements before scheduling your installation.

Documentation You Will Need

Keep thorough records regardless of which incentives you pursue. At minimum, retain the contractor's invoice showing equipment model numbers and installation date, the Manufacturer Certification Statement for 25C credit eligibility, proof of payment, the building permit and inspection report, and any rebate application confirmations. For IRA rebates, you may also need proof of household income. Store these documents for at least four years after the tax year in which you claim the credit, in case of an IRS audit.