If you’ve heard about a federal tax credit for insulation, new windows, a heat pump, or a home energy audit, you may be wondering if it’s still available in 2026. The short answer: the Energy Efficient Home Improvement Credit, also known as the 25C credit, changed significantly under the One Big Beautiful Bill Act (OBBBA). Here’s what homeowners need to know before filing this year — and before planning any new upgrades.
1. What the Energy Efficient Home Improvement Credit (25C) Covered
For several years, the 25C credit helped homeowners offset the cost of energy-saving upgrades to an existing home. Eligible improvements generally included:
- Insulation and air-sealing materials
- Exterior doors, windows, and skylights
- Central air conditioners
- Water heaters, furnaces, and boilers that meet efficiency requirements
- Heat pumps and heat pump water heaters
- Biomass stoves and boilers
- Home energy audits
The credit came with annual dollar limits rather than a single lifetime cap:
- A $1,200 general annual limit, with smaller sub-caps within that total for items like exterior doors, windows, and home energy audits
- A separate $2,000 annual limit specifically for qualifying heat pumps, heat pump water heaters, and biomass stoves or boilers
Because these were annual limits, homeowners could claim the credit again each tax year they made qualifying purchases — there was no lifetime maximum. That was true through the 2025 tax year.
2. What Changed Under OBBBA for 2026
The One Big Beautiful Bill Act made a direct change to this credit. Under OBBBA Section 70505, the Energy Efficient Home Improvement Credit is terminated for property placed in service after December 31, 2025.
This is important to understand clearly: the law did not reduce the credit, phase it down gradually, or replace it with a smaller version. It ended the credit outright starting in 2026. If your qualifying home improvement is placed in service on or after January 1, 2026, the 25C credit is not available for it under current law.
3. Can You Still Claim It for 2025 Work?
Yes — if the timing works out. The key detail the IRS uses is not when you purchased the materials or signed a contract, but when the improvement was placed in service. In practical terms, that means the equipment was installed and ready for its intended use.
If your qualifying improvement was placed in service on or before December 31, 2025, you can still claim the 25C credit by filing Form 5695, Residential Energy Credits, with your 2025 federal tax return, which most homeowners will file during the 2026 filing season.
A few practical reminders:
- Keep your receipts and invoices, and get the four-character qualified manufacturer identification number (QMID) for each qualifying window, door, air conditioner, furnace, water heater, or heat pump. For 2025 installs, the IRS says the credit can’t be claimed without it. Insulation and air-sealing materials are exempt from that requirement.
- Note the exact installation completion date, since that determines eligibility, not the purchase date
- If you’re unsure whether your specific product qualifies, the manufacturer’s documentation or the IRS instructions for Form 5695 are the best places to check
How Much Could You Claim? Limits by Upgrade
The credit equals 30% of qualifying costs, but each category has its own ceiling. These are the limits that applied to work finished in 2025, the last year the credit existed.
| Upgrade | Maximum credit | Counts toward the $1,200 cap? |
|---|---|---|
| Windows and skylights | $600 total per year | Yes |
| Exterior doors | $250 per door, $500 total | Yes |
| Home energy audit | $150 | Yes |
| Central air conditioner, gas/propane/oil furnace, boiler, or water heater | $600 per item | Yes |
| Insulation and air-sealing materials | 30% of material cost, no separate sub-cap | Yes |
| Heat pump, heat pump water heater, biomass stove or boiler | $2,000 total per year | No, it has its own limit |
One detail that trips people up: labor for installing insulation, windows, and doors doesn’t count, while labor for items like a heat pump or furnace does. The credit is also nonrefundable, so it can only reduce tax you owe, and the IRS says any excess can’t be carried forward.
A Worked Example
Say you finished two projects in October 2025: a heat pump installed for $9,000 and new windows for $3,000 (materials only).
- Heat pump: 30% of $9,000 is $2,700, but the cap is $2,000, so you get $2,000
- Windows: 30% of $3,000 is $900, but the cap is $600, so you get $600
- Total credit: $2,600
Now the nonrefundable part. If your 2025 federal income tax came to only $1,500 before credits, you could use $1,500 of that $2,600 and the other $1,100 would be lost. That is a made-up scenario, but it shows why the credit is worth less to someone with a small tax bill.
Missed It on Your 2025 Return?
If you already filed your 2025 return without Form 5695, you may be able to claim the credit afterward with an amended return (Form 1040-X). The IRS generally allows a refund claim within three years of filing the original return or two years of paying the tax, whichever is later. If you requested an extension instead, the extended filing deadline is generally October 15, 2026, so check where you stand soon.
4. What This Means If You’re Planning Home Upgrades in 2026
If you’re considering insulation, a new heat pump, energy-efficient windows, or a home energy audit in 2026, it’s important to go in with accurate expectations: under current law, there is no federal 25C credit for improvements placed in service in 2026 or later.
That doesn’t necessarily mean there’s no financial help available. It’s worth checking whether any of the following still apply in your area:
- State-level energy efficiency tax credits or rebates
- Utility company rebate programs for insulation, heat pumps, or efficient appliances
- Remaining Department of Energy (DOE) rebate programs, where available, which are separate from the federal 25C tax credit
- Local or regional incentive programs administered by your state energy office
Because these programs vary by state and change over time, check directly with your state energy office, your utility provider, or DOE.gov for the most current options before starting a project.
5. Frequently Asked Questions
Does this also affect the Residential Clean Energy Credit (25D) for solar?
The 25C credit covered here (insulation, windows, heat pumps, audits, etc.) is a separate program from the Residential Clean Energy Credit (Section 25D), which applies to solar panels, solar water heating, and similar renewable energy property. They are two separate credits, but the IRS instructions for Form 5695 say you can’t claim the residential clean energy credit for expenditures made after December 31, 2025, either. So the same cutoff generally applies to solar. Work finished in 2025 can still be claimed on that year’s return.
What if I signed a contract in 2025 but the installation finishes in 2026?
Based on how the IRS has defined “placed in service” for this credit, what typically matters is the date the equipment is installed and ready for use — not the date of the contract or purchase. If installation isn’t completed until 2026, the improvement may fall outside the credit’s eligibility window under the OBBBA termination. If your project spans the end of 2025 into 2026, it’s worth confirming the specific placed-in-service date with your contractor and, if you have questions about how it applies to your situation, checking the IRS instructions for Form 5695 or speaking with a tax professional.
6. The Bottom Line for 2026 Filers
The Energy Efficient Home Improvement Credit was a useful annual benefit for homeowners investing in insulation, windows, heat pumps, and similar upgrades — but OBBBA closed it out for anything placed in service after December 31, 2025. If you completed qualifying work in 2025, don’t leave that credit on the table: file Form 5695 with your 2025 return and keep your documentation handy. If you’re planning upgrades for 2026 and beyond, shift your research toward state, utility, and DOE rebate programs, since the federal 25C credit is no longer part of the picture under current law.
This article is for general informational purposes and reflects publicly available guidance as of publication. Tax rules and IRS guidance for 2026 can change — for guidance specific to your situation, consult a qualified tax professional or the official IRS instructions for Form 5695 on IRS.gov.
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