Quick answer
The 25C federal tax credit covers 30% of the cost of a qualifying heat pump or heat pump water heater, up to $2,000 per year 1. For 2025, heat pumps must meet ENERGY STAR Most Efficient criteria for the year they're installed to qualify 2.
How it works
When you file your federal taxes, you'll claim the credit by completing IRS Form 5695 and submitting it with your return 3. The credit is nonrefundable, so it can only reduce the federal taxes you owe — it won't generate a refund if your credit exceeds your tax bill 4.
Heat pumps and heat pump water heaters share a combined $2,000 credit limit, and biomass stoves and boilers also fall under this same cap 1. That means if you install both a heat pump and a heat pump water heater in the same year, your total credit for those two items can't exceed $2,000.
Eligibility requirements for 2025
To claim the credit on your 2025 tax return, your heat pump must be installed and placed in service on or before December 31, 2025 5. It also has to be in your primary residence — vacation homes, new builds, and rental properties don't qualify 6.
For property placed in service after December 31, 2024, you'll need to include the qualified manufacturer's Product Identification Number (PIN) on Form 5695 7. Installation must be done by a licensed or certified contractor, following your local and state regulations, to stay eligible 4.
Keep all receipts, product certifications, and installation paperwork. These records are essential if you need to prove your eligibility 4.
When this matters for you
You can claim the credit on your 2025 tax return only if the heat pump is installed and placed in service on or before December 31, 2025 5. If you're planning an installation late in the year, schedule it early enough to avoid missing the cutoff — working plumbers often see a rush in November and December that can delay projects.
Components or variations
The 25C tax credit covers 30% of the cost of a heat pump or heat pump water heater, up to $2,000 per year 1. This means if you install a qualifying system, you can claim a significant chunk of the expense back on your federal taxes.
Standards and codes
For 2025, split and packaged heat pumps must meet or exceed the CEE highest efficiency tier (excluding advanced tier) to qualify 4. The 2025 eligibility criteria introduce a Path A or Path B choice for split heat pumps, with a unified national set of requirements 8. This means you'll have two routes to qualify, but the standards are consistent across the country.
Frequently Asked Questions
Is the tax credit refundable?
No, it's nonrefundable. That means it can only reduce the federal taxes you owe — it won't generate a refund if your credit exceeds your tax bill. You must have a tax liability to claim it 4.
What's the $2,000 credit limit?
The $2,000 cap is a combined limit for heat pumps and heat pump water heaters. Biomass stoves and boilers also share this same limit 1. If you install multiple qualifying items, the total credit for these categories can't exceed $2,000.
Do I need a licensed contractor?
Yes. The installation must be done by a licensed or certified contractor, following your local and state regulations, to stay eligible for the credit 4.
What records should I keep?
Hang onto all receipts, product certifications, and installation paperwork. These documents are essential for proving your eligibility if the IRS asks 4.