Cost & money
HVAC tax credit 2026: what qualifies and how much you get
The federal 25C Energy Efficient Home Improvement Credit covers 30% of the cost of qualifying HVAC equipment — capped at $600 for a qualifying central air conditioner and $2,000 fo...
The federal 25C Energy Efficient Home Improvement Credit covers 30% of the cost of qualifying HVAC equipment — capped at $600 for a qualifying central air conditioner and $2,000 for a qualifying heat pump. Both can be claimed in the same tax year, and the heat pump category sits outside the general $1,200 annual cap that applies to most other improvements.
What actually qualifies
Efficiency tiers, not brands. For central air conditioning the qualifying threshold is set by CEE’s highest efficiency tier, which for split systems in the southern region has meant roughly 16 SEER2 / 12 EER2 or better. Heat pumps have their own tier, with a separate cold-climate specification that does not apply to most North Texas installations. Gas furnaces qualify at 97% AFUE — worth knowing, because that is a higher bar than most Frisco homeowners would choose on payback grounds alone.
The two caps, and why the heat pump one matters
Most 25C improvements share a $1,200 annual cap, so a $600 air conditioner credit competes with insulation and windows for the same pot. Heat pumps have their own $2,000 line. That means the same house can claim up to $3,200 in a single year across both categories. For a homeowner without gas service, this materially changes the heat-pump-versus-electric-resistance comparison.
The annual reset
25C has no lifetime limit — it resets each tax year. If you are doing a phased project, splitting work across two calendar years can be worth more than doing it all at once. The installation date determines the year, not the payment date.
What it does not cover
Labour on air conditioners and furnaces is not included in the credit basis, only equipment cost. Rental properties do not qualify; second homes qualify only for some categories. And it is a non-refundable credit — it reduces tax owed, and if you owe less than the credit is worth, you do not get the difference back.
Documentation to ask for at installation
- An itemised invoice showing equipment cost separately from labour.
- The manufacturer’s certification statement.
- The AHRI reference number for the matched system.
- The product identification number for the qualifying equipment, which recent tax years have required on the return.
Ask for these on the day. Chasing a contractor for paperwork the following April is a familiar and entirely avoidable annoyance.
Texas utility rebates stack
Rebates from local providers are separate from the federal credit and can generally be claimed alongside it, though a rebate usually reduces the cost basis the credit is calculated on. Programs change frequently and are tied to specific efficiency tiers, so it is worth checking what is live at the time you buy rather than assuming.
How this changes the equipment decision
A 16 SEER2 system that costs $1,800 more than the 14.3 minimum returns $600 of that at tax time, so the real gap is $1,200 — and in Frisco’s long cooling season the remainder comes back faster than most people assume. That is the honest way to run the comparison: credit first, then payback on the difference.
It also means the credit is worth most on the first step up from minimum efficiency and worth nothing on the steps above it. Once equipment clears the qualifying tier, going higher earns no additional credit — you are paying full price for each further increment. A contractor pushing you from a qualifying 16 SEER2 unit to a 20 SEER2 unit “because of the tax credit” has the logic backwards.
Claiming it
The credit is claimed on IRS Form 5695, Residential Energy Credits, filed with your return for the year the equipment was installed. Part II covers the Energy Efficient Home Improvement Credit. You do not submit the manufacturer’s certification or the invoice with the return — you keep them in case the return is examined.
Because it is non-refundable and does not carry forward, a year in which you owe little federal tax is a poor year to claim a large credit. If your liability is low and the work is not urgent, that is a genuine argument for timing the installation into a different tax year. Worth a conversation with whoever prepares your return before you schedule the job.
Two things people get wrong
The cap is per year, not per system. Replacing two systems in a dual-system house in the same calendar year does not get you $600 twice for air conditioners. Splitting the two installations across two tax years can.
Efficiency tiers move. The qualifying threshold is tied to CEE tiers that are reviewed periodically, and equipment that qualified two years ago may not qualify now. Never rely on an older article, a contractor’s memory, or a brochure printed before the current tax year — check the tier in force on the date the work will be done.
This is not tax advice. Tax law changes and individual circumstances differ. Confirm the current year’s rules and your own eligibility with a tax professional. We list the qualifying efficiency rating on your quote so your accountant has what they need.
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