If you are considering upgrading your HVAC system, water heater, or other home energy equipment in 2026, significant federal tax credits and rebates may be available to offset the cost. The Inflation Reduction Act (IRA), signed into law in August 2022, created the most substantial energy efficiency incentives for homeowners in U.S. history, and many of these programs remain active in 2026.
This guide covers the federal Energy Efficient Home Improvement Credit (Section 25C), state-level rebate programs, and how to maximize your savings.
Overview: What Is Available in 2026?
The IRA established two main categories of residential energy incentives:
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Section 25C Tax Credits (Energy Efficient Home Improvement Credit) — Provides tax credits of up to $3,200 per year for eligible efficiency upgrades. The expanded credit was authorized through December 31, 2032.
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State Rebate Programs (HOMES and HEAR) — Point-of-sale and mail-in rebates funded by federal IRA dollars but administered by individual states. These programs have been rolling out state by state since 2024-2025.
Important Note: Tax credit availability and amounts for 2026 depend on current legislation. The 25C credit was originally authorized through 2032, but policy changes can occur. Consult a tax professional or visit the IRS website for the most current information before making purchasing decisions based on tax credits.
Section 25C: Energy Efficient Home Improvement Credit
How It Works
The 25C credit covers 30 percent of the cost of eligible energy efficiency improvements, subject to annual caps. Unlike a tax deduction, a tax credit reduces your tax liability dollar-for-dollar. However, the credit is non-refundable, meaning it can only reduce your tax owed to zero but will not result in a refund beyond what you owe.
Annual Credit Limits
The Section 25C credit has a combined annual cap of $3,200, divided into two sub-categories:
Heat Pump and Heat Pump Water Heater Category: Up to $2,000/year
| Equipment | Credit Amount |
|---|---|
| Air-source heat pumps | 30% of cost, up to $2,000 |
| Heat pump water heaters | 30% of cost, up to $2,000 |
| Biomass stoves and boilers | 30% of cost, up to $2,000 |
Other Improvements Category: Up to $1,200/year
| Equipment/Improvement | Credit Amount |
|---|---|
| Central air conditioners | 30% of cost, up to $600 |
| Gas furnaces (95%+ AFUE) | 30% of cost, up to $600 |
| Gas boilers (95%+ AFUE) | 30% of cost, up to $600 |
| Insulation and air sealing | 30% of cost, up to $1,200 |
| Electrical panel upgrades | 30% of cost, up to $600 |
| Windows | 30% of cost, up to $600 |
| Exterior doors | 30% of cost, up to $250 each ($500 max) |
| Home energy audit | 30% of cost, up to $150 |
Maximum Combined Example
If you install a heat pump ($2,000 credit) and add insulation ($1,200 credit) in the same year, you can claim up to $3,200 in total credits for that tax year. The limits reset each year, allowing you to spread improvements across multiple years.
Eligibility Requirements
To qualify for the 25C credit:
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You must be the homeowner. The credit applies to your primary residence or in some cases a second home. Rental properties do not qualify.
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Equipment must meet efficiency standards. Eligible equipment must meet or exceed the highest efficiency tier (not including advanced tiers) established by the Consortium for Energy Efficiency (CEE). Specifically:
- Heat pumps must be ENERGY STAR certified and meet CEE highest tier
- Central AC units must meet CEE highest tier criteria
- Gas furnaces must have an AFUE of 97% or higher (as of recent updates)
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Qualified Manufacturer Identification Number (QMID). You must report the manufacturer’s QMID on your tax return. Ask your contractor or check the manufacturer’s documentation for this number.
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Professional installation is required for most HVAC equipment to qualify.
How to Claim the Credit
File IRS Form 5695 (Residential Energy Credits), Part II, with your annual tax return. Claim the credit for the tax year the equipment was installed, not purchased.
Keep all receipts, manufacturer certification statements, QMID numbers, and contractor invoices as documentation.
State Rebate Programs: HOMES and HEAR
The IRA allocated $8.8 billion for two state-administered rebate programs. Unlike tax credits, these are actual rebates that reduce the purchase price directly.
HOMES (Home Owner Managing Energy Savings) Rebates
The HOMES program provides rebates based on whole-home energy savings achieved through efficiency improvements.
| Energy Savings Achieved | Standard Rebate | Low/Moderate Income Rebate |
|---|---|---|
| 20–35% energy reduction | Up to $2,000 | Up to $4,000 |
| 35%+ energy reduction | Up to $4,000 | Up to $8,000 |
Rebate amounts are determined by modeled or measured energy savings specific to your home.
HEAR (Home Electrification and Appliance Rebates)
The HEAR program provides point-of-sale rebates for specific electrification upgrades. This program is only available to low- and moderate-income households (below 150% of Area Median Income).
| Equipment | Maximum Rebate |
|---|---|
| Heat pump (HVAC) | Up to $8,000 |
| Heat pump water heater | Up to $1,750 |
| Heat pump clothes dryer | Up to $840 |
| Electric stove/cooktop | Up to $840 |
| Electrical panel upgrade | Up to $4,000 |
| Electric wiring | Up to $2,500 |
| Insulation and air sealing | Up to $1,600 |
For qualifying low-income households (below 80% of AMI), rebates cover 100% of costs up to the caps above. For moderate-income households (80-150% of AMI), rebates cover 50% of costs.
Texas-Specific Programs
Texas received approximately $690 million in IRA funding through the State Energy Conservation Office (SECO) to administer the HOMES and HEAR programs. Key details for Texas:
- The Texas HOMES program provides rebates for whole-home energy efficiency retrofits.
- The Texas HEAR program targets low- and moderate-income households for electrification upgrades.
- Check the Texas Comptroller’s SECO website for current program status, application procedures, and eligible contractors.
- Program availability and funding levels may change as allocations are distributed.
Check your state’s program status at your state energy office website, as program rollout timelines vary by state.
How to Maximize Your Savings
Strategy 1: Combine Tax Credits and Rebates
In many cases, you can claim both the federal 25C tax credit and a state HOMES or HEAR rebate for the same improvement. This can dramatically reduce the net cost of a major upgrade like a heat pump installation.
Example: Installing a qualifying heat pump system costing $10,000:
- 25C tax credit: $2,000 (30% up to the cap)
- State HOMES rebate (if eligible): $2,000–$8,000 depending on income and energy savings
- Net cost: As low as $0–$6,000
Strategy 2: Spread Improvements Across Multiple Years
Because the 25C credit resets annually, you can maximize total credits by spreading improvements across tax years. For example:
- Year 1: Install a heat pump ($2,000 credit) and insulation ($1,200 credit) = $3,200
- Year 2: Replace windows ($600 credit), add a heat pump water heater ($2,000 credit) = $2,600
Strategy 3: Get a Home Energy Audit First
A professional home energy audit (eligible for up to $150 in tax credits) identifies which improvements will yield the greatest energy savings. This helps you prioritize investments and may be required for HOMES program rebates.
Strategy 4: Choose Equipment That Qualifies
Not all ENERGY STAR equipment meets the higher CEE efficiency thresholds required for the 25C credit. Before purchasing, verify that the specific model qualifies by:
- Checking the ENERGY STAR rebate finder
- Asking the manufacturer or dealer for the QMID number
- Consulting with your HVAC contractor about qualifying models
Equipment That Typically Qualifies
Heat Pumps (Biggest Credit Opportunity)
Qualifying air-source heat pumps typically need to meet these approximate specifications:
- SEER2 rating of 16 or higher
- HSPF2 rating of 9 or higher
- EER2 rating of 12 or higher
These are approximate thresholds that correspond to the CEE highest tier. Check the current CEE specifications for exact requirements, as they are updated periodically.
Central Air Conditioners
Must meet CEE highest efficiency tier, typically requiring:
- SEER2 of 16 or higher
- EER2 of 12 or higher
Gas Furnaces
Must have an AFUE of 97% or higher to qualify under recent IRS guidance.
Heat Pump Water Heaters
Must have a Uniform Energy Factor (UEF) of 2.2 or higher for most residential sizes.
Common Questions About HVAC Tax Credits
Can I claim credits on equipment installed in previous years?
No. The credit must be claimed for the tax year in which the equipment was installed. You cannot go back and claim credits retroactively.
Do I need to itemize deductions to claim the credit?
No. The 25C credit is available regardless of whether you itemize or take the standard deduction.
What if I owe less in taxes than the credit amount?
The 25C credit is non-refundable, meaning it can only reduce your tax liability to zero. Any excess credit cannot be refunded or carried forward to future years. Plan your installations accordingly.
Can I claim credits on a rental property?
No. The 25C credit only applies to your principal residence (and in some cases, a second home that you use). Rental or investment properties do not qualify.
Do both spouses need to be on the title?
The credit is claimed per tax return, not per person. Married couples filing jointly share one $3,200 annual cap.
Important Disclaimers
Tax credits and rebate programs are subject to legislative changes, funding availability, and evolving IRS guidance. The information in this guide reflects what is known as of early 2026, but:
- Consult a qualified tax professional before making purchasing decisions based on tax credits.
- Verify current eligibility requirements on the IRS website (irs.gov) and ENERGY STAR website (energystar.gov).
- Check your state’s program status for HOMES and HEAR rebates, as rollout timelines and funding availability vary.
- Keep all documentation, including receipts, manufacturer certifications, QMID numbers, and contractor invoices.
Planning an HVAC upgrade and want to maximize your tax credits and rebates? In Central Texas, Texas Temp Masters installs qualifying high-efficiency heat pumps, air conditioners, and furnaces. Our team can help you identify equipment that qualifies for maximum incentives. Call (817) 704-0706 or visit our contact page to schedule a consultation.
