FEDERAL ENERGY EFFICIENT HOME IMPROVEMENT CREDIT (25C)
* EXPIRED *
Federal 25C heat pump water heater tax credits
The deadline to make a credit-eligible upgrade has passed. If you made a qualifying installation of a heat pump water heater by December 31, 2025, read on for how to apply this credit when you file your taxes in 2026.
View other eligible projects under this tax credit:
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Introduction
Introduction
Disclaimer: The information presented here is for educational purposes only. It is not intended to provide specific tax guidance. For questions regarding your individual tax situation, we suggest consulting with your tax advisor.
Tax Credit
Up to $2,000
Expired Dec. 31, 2025
Which heat pump water heaters qualify?
Heat pump water heaters must meet certain energy efficiency requirements set by the Consortium for Energy Efficiency (CEE).
The 25C tax credit was 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, however, 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 listed a certain heat pump water heater as eligible for 25C, and your project was completed by the end of 2025, that’s all you need. Screenshot it and keep it for your records! If you want to take it a step further, you can check the ENERGY STAR Product Finder or CEE’s directory.
For more on the efficiency requirements of other purchases, see this IRS FAQ.
Who qualifies for the 25C heat pump water heater tax credit?
The 25C tax credit can be used by renters, and homeowners making upgrades to their primary or secondary home.
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, on projects completed by Dec. 31, 2025.
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.
What is the 25C heat pump water heater tax credit?
All households who pay federal income taxes are eligible for up to a $2,000 credit for the installation of a qualifying heat pump water heater, as long as it is purchased and installed by Dec. 31, 2025.
The 25C Energy Efficient Home Improvement Tax Credit provides a tax credit for eligible heat pump water heaters up to 30% of project costs, capped at $2,000.
| Project type | How much funding can you receive from 25C for qualifying projects? |
|---|---|
| Project type:Electrical components | How much funding can you receive from 25C for qualifying projects?: Up to 30 percent, generally capped at $600 per year, for the items listed below:
|
| Project type:Heat pumps and heat pump water heaters | How much funding can you receive from 25C for qualifying projects?: Up to 30 percent, capped at $2,000 per year for qualified:
|
| Project type:Weatherization (insulation, air sealing, and ventilation) | How much funding can you receive from 25C for qualifying projects?: Up to 30 percent, capped at the following amounts for each type of project:
All weatherization projects are combined with electrical panel upgrades for a total project cap of $1,200 per year. |
| Project type:Home energy audit | How much funding can you receive from 25C for qualifying projects?:Up to $150. Home energy audits must be performed by a certified home energy auditor, and include a full home inspection and report to qualify. |
Source: IRS
The 25C Energy Efficient Home Improvement Credit is limited to $2,000 per year for qualifying heat pump water heater installations, and there is a $3,200 yearly cap for all qualifying 25C tax credits combined.
Tax credit limitations
The 25C Heat Pump Water Heater tax credit may cover up to 30% of your heat pump water heater project costs, capped at $2,000.
Generally, you must subtract any price adjustments from the cost of the item. This can mean rebates, utility subsidies, financial incentives, and anything else that lowers the price point. This part can get a little tricky, so be sure to check the Frequently asked questions about energy efficient home improvements and residential clean energy property credits for more information.
The 25C tax credit is “non-refundable,” which means that you can't get back more than you pay in federal income taxes. For example, if 30% of your project’s cost is $1,500, but you only owe $1,000 in federal income taxes that year, you would receive a $1,000 credit.
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Want a water heater that is 3x more efficient? Heat pump water heaters may save you money and just like heat pump heating and cooling, they work in cold climates, too!