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Big Money Back for Heating and Cooling With 25C Tax Credits

Outdoor AC and HVAC units

The Inflation Reduction Act allots over $300 billion toward fighting climate change. As a result, we’ll experience countless long-term benefits, like reduced energy bills. But the most direct and immediate consumer-focused benefits come in the form of homeowner tax credits and rebates built around energy efficiency. The Inflation Reduction Act calls for restoring a credit that ended last year, making it retroactive for all of 2022 and extending it for more than a decade. Below, we will look at the changes made to the Inflation Reduction Act of 2022 and how it can benefit homeowners.

Understanding the Inflation Reduction Act 25C Tax Credits

On August 16th, 2022, the Inflation Reduction Act of 2022 was passed, naming CEE tiers as the basis for federal tax credits across several product categories through 2032, including: 

  • Electric or gas heat pump water heaters 
  • Electric or natural gas heat pumps 
  • Central air conditioners 
  • Gas, propane, or oil water heaters 
  • Gas, propane, or oil furnace boilers

The Inflation Reduction Act expanded and extended two homeowner tax credits meant to encourage individuals to invest in energy efficiency improvements or clean energy in their homes, including:

  • The energy-efficient home improvement credit (previously known as the tax credit for

nonbusiness energy property, Section 25C), which subsidizes certain investments that reduce energy consumption in homes.

  • The residential energy tax credit (previously, the energy efficient property credit, Section 25D), which subsidizes investments in renewable energy production at taxpayers’ residences.

The Section 25C credit had expired at the end of 2021, but the IRA reintroduced the credit retroactively for qualifying upgrades placed in service during the 2022 tax year with these notable updates: 

  • Now called Energy Efficient Home Improvement Tax Credit
  • 30% credit rate for HVAC products that meet Consortium for Energy Efficiency (CEE) tier
  • Up to $600 credit for ACs and furnaces and $2,000 for heat pumps
  • The program extends to 2032
  • Added generous annual limits, which can be used year after year

Major Changes to the Residential Tax Credit in 2023 and Beyond

Taxpayers typically claim expenses for the credit in the year they install the upgrade in their homes, but for investments placed in service from 2023 through 2032, the credit amount is higher than it was in the past, and the scope of qualifying expenses eligible for the credit is expanded to include the following changes: 

  • Expenses related to qualifying home energy audits paid or incurred during the year will also qualify. The energy efficiency standards that investments must meet to qualify will change and update automatically in the future. Starting in 2025, taxpayers must report their products’ identification numbers to claim the credit.
  • Investments in roofs will no longer qualify, but certain upgrades in biomass stoves and air-sealing material placed in service in 2023 or later will. Improvements to, or replacement of, panelboards, sub-panelboards, branch circuits, or feeders also qualify beginning in 2023.
  • No lifetime limits. 
  • Annual limits improvements/changes:
    • $300 for any single energy property item to $1,200 for the entire credit for most taxpayers.
    • $150 for any qualified natural gas, propane, or oil furnace and hot water boiler to $600 for any single energy property item.
    • Despite these limits, the credit for qualifying prices on biomass stoves or water heaters, and heat pumps powered by electricity or natural gas is capped at $2,000.
    • $600 on windows.
    • $150 for home energy audits.
    • $500 for exterior doors in the aggregate and $250 per exterior door.

Residential Tax Credit Assistance With American Weathermakers

Whether you’re searching for a reliable company to assist with a new heat pump installation or have questions regarding these updates, American Weathermakers is here to assist. We have years of experience helping homeowners evaluate their options to ensure they get the best and most efficient model for their homes. If you’re interested in scheduling a service, contact us at (847) 503-9497. Click here to see your eligible rebates.

Outdoor AC and HVAC units

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