
Federal Tax Credits for Energy Efficiency in 2025: What You Need to Know
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Tax season is here and ENERGY STAR has information to help you plan energy-efficient upgrades to your home that can save energy, money on your energy bills, and get a tax credit on next year's tax bill.
Americans throughout the country are taking advantage of federal tax credits for energy-efficient home improvements to make their homes more sustainable and save money. According to the Internal Revenue Service, in 2024, more than $2 billion in credits were claimed for these improvements by 2.3 million families, averaging $880 per family.
With tax season upon us, now is a good time to consider what improvements you can make in your home this year that can save on next year’s tax bill.
The Basics of Federal Tax Credits for Energy Efficiency
These federal tax credits empower Americans to invest in energy-efficient upgrades by reducing the cost of making them. The Inflation Reduction Act (IRA) of 2022 introduced enhanced tax credits for energy efficiency and extended them through 2032.
They cover many improvements, including heat pumps, insulation, heat pump water heaters, and energy-efficient windows and doors. The maximum annual credit available is 30% of the project cost, up to $3,200. This includes up to $2,000 for heat pump technology and up to $1,200 for other specified upgrades.
New Requirements for Air Source Heat Pumps in 2025
Air Source heat pumps have become more popular as an alternative to traditional HVAC systems because they efficiently provide heat and cooling, all in one. For 2025, the federal tax credits for heat pumps come with updated eligibility criteria.
Here’s what homeowners need to know:
As of January 1, 2025, air source heat pumps that are recognized as ENERGY STAR Most Efficient are eligible for this credit. There are two pathways for eligibility. One pathway is designed for heating-dominated applications (i.e., cold climates), and the relevant eligible products will be designated as ENERGY STAR Cold Climate. The other path is for cooling-dominated and dual-fuel applications (e.g., a heat pump paired with a furnace). Consumers and contractors can choose either pathway regardless of the home’s location, as there is no longer a regional requirement.
ENERGY STAR offers a listing of eligible heat pumps (both central heat pumps and ductless heat pumps) designed for contractors to help you choose the product that will meet the requirements to claim the tax credit when you file your 2025 taxes.
For homeowners, these credits represent a significant opportunity to invest in long-term energy savings while improving the comfort of your home and reducing your tax burden. By understanding the new requirements, you can make informed decisions that make sense for your wallet and your home. As always, staying informed and planning are key to taking full advantage of these incentives.
Learn more about the federal tax credits for energy efficiency.