Homeowners and renters making upgrades to their existing home

Homeowners can use this tax credit for heat pump water heater projects at homes that are already built. Homeowners can use this tax credit for primary and secondary homes.

Renters are also eligible to use this tax credit. 

Landlords can never claim this credit for homes they rent out but do not use as a residence themselves.

For more information, see Frequently asked questions about energy efficient home improvements and residential clean energy property credits.

To learn about credits for new homes, see Section 45L New Energy Efficient Home Credit, which offers incentives for  Zero Energy Ready homes. 

No income requirements 

There are no income limitations for the 25C Tax Credit — but like nearly all federal tax credits, you can only use it if you pay federal income taxes.

The 25C tax credit is designed to incentivize high-efficiency equipment. Specifically, qualifying heat pump water heaters must meet or exceed the highest efficiency tier (not including any advanced tiers) established by the Consortium for Energy Efficiency (CEE). 

Efficiency standards and ratings can be difficult to evaluate, so your best bet is to ask your contractor if your project qualifies for the 25C tax credit. Some manufacturer websites list tax credit eligible equipment, and so does the ENERGY STAR Product Finder. For the most comprehensive list of qualifying heat pump water heater models, see CEE’s directory. 

One piece of good news: the IRS has said that to claim the credit, you can rely on the manufacturer’s written certification that a product qualifies. So if the manufacturer website lists a certain heat pump water heater as eligible for 25C, that’s all you need. Screenshot it and keep it for your records! 

For more on the efficiency requirements of other purchases, see this IRS FAQ.

1. Keep track of (or track down) the invoice from your contractor. 

2. Fill out IRS Form 5695, Residential Energy Credits. For instructions on how to fill out the form, including more in-depth information about individual amounts you can claim, see the IRS’s Instructions for Form 5695.

3. Submit the form along with your annual tax return. 

4. You may enjoy a lower tax bill or bigger refund!

You can claim the standard deduction and claim the 25C tax credit. You don't have to itemize.

You can only apply for and claim the 25C tax credit for energy upgrades in the year in which a project is completed. For example: if you purchased your equipment in late 2023 but didn’t have it installed until 2024, you have to file the tax credit with your 2024 tax return.