Beat the Clock: Last-Chance Tax Savings on Heating & Cooling Equipment

Here’s something to be thankful for this holiday season: if you’ve been putting off that furnace replacement or wondering whether it’s time to upgrade your water heater, there is ONE last opportunity to snag some pretty sweet federal tax credits.

But here’s the catch – the clock is ticking, and these incentives are going away for good at the end of the year.

What’s happening with these tax credits?

The federal government recently accelerated the end date for several energy tax credits. The IRS confirmed in August 2025 that two major credit programs – the Energy Efficient Home Improvement Credit (the technical term is Section 25C) and the Residential Clean Energy Credit (Section 25D) – will not be available after December 31, 2025.

What this means in plain English: your new heating or cooling equipment needs to be installed and up and running by the end of this year to qualify. Just ordering the equipment won’t cut it – it has to be operational by December 31st to claim the credit when you file your 2025 taxes next year.

What equipment still qualifies before the deadline?

Let’s break down what you can still get credits for if you act before the ball drops on New Year’s Eve:

Heat pumps are the big winner here. Air-source heat pumps qualify for a credit of 30% of the cost, up to $2,000. These are great options for our climate since they can both heat and cool your home efficiently. Similarly, heat pump water heaters can get you the same deal – 30% back, up to $2,000.

Gas and oil furnaces that meet high-efficiency standards qualify for 30% of the cost, up to $600. If your old furnace has been making those concerning noises or just can’t keep up anymore, this could be the nudge you need to replace it.

Central air conditioners also qualify for 30% of the cost, up to $600, as long as they meet the efficiency criteria. Now, we know you’re probably not thinking about air conditioning in November, but planning ahead for spring installations can help you beat the rush.

Water heaters running on natural gas, oil, or propane can qualify for 30% back, up to $600, if they’re high-efficiency models. And as we mentioned, heat pump water heaters get the higher $2,000 cap.

There’s also an overall annual maximum to keep in mind. For most homeowners, you’re looking at a total cap of $3,200 per year across all eligible improvements. That breaks down to up to $2,000 for heat pumps and heat pump water heaters, plus up to $1,200 for other improvements like furnaces, central AC units, windows, and doors.

The fine print you need to know

Here’s where things get a little technical, but stick with us – it’s important stuff.

First, that December 31st deadline is firm. “Placed in service” is the IRS term, which basically means installed and working. If your contractor says they can have it done by year-end, get that in writing and make sure they’re not overbooked.

Second, for 2025 claims, the IRS requires something called a product identification number, or PIN. This is a registration system to verify that your equipment qualifies. Your contractor should provide this PIN, or you might find it on the product label. Keep it with your tax records because you’ll need it when filing.

Third, these credits are “non-refundable,” which means they can reduce your tax bill to zero, but they won’t generate a refund beyond that. And if the credit is bigger than what you owe in taxes, you can’t save the leftover amount for next year – it’s use it or lose it for 2025.

How to actually claim your credit

The process isn’t too complicated once you know the steps. Start by choosing equipment that qualifies – your contractor should be able to confirm eligibility and provide that manufacturer PIN we mentioned. Make sure you ask them directly about this before the installation.

Get everything installed by December 31, 2025. Keep your invoices, model numbers, any ENERGY STAR documentation, and that PIN with your tax records. You’re basically creating a paper trail to prove everything qualifies.

When tax time rolls around in early 2026, you’ll file IRS Form 5695 with your federal return. Part II of this form covers the Energy Efficient Home Improvement Credit. The form has instructions that walk you through calculating your credit based on what you installed.

Your game plan for making this happen

Let’s be real – we’re already in November. If you want to take advantage of these credits, you need to move quickly. Call TMI now to get on the schedule. December gets busy fast with holiday plans and year-end everything, and contractors’ calendars fill up as people realize this deadline is approaching.

When you talk to us, ask for written confirmation that the equipment meets ENERGY STAR and efficiency criteria tied to the credit. Make sure whoever you work with understands you need that manufacturer PIN for your tax filing.

Collect everything as you go – receipts, spec sheets, model numbers, and that PIN. Don’t wait until April 2026 to start hunting for paperwork. Get a folder and keep it all together now.

What happens after 2025?

Based on current IRS guidance, these specific credits for heating and cooling equipment end after December 31, 2025. There might be state or utility rebates available independent of these federal credits, but those vary by location and program. Some other federal programs have different timelines, but they cover different types of improvements and have their own rules.

The bottom line is this: if you’ve been thinking about upgrading your heating system, your AC, or your water heater, this is genuinely your last chance to get this level of federal tax credit.