HVAC Tax Credits: How to Qualify and Maximize Your Savings
Upgrading HVAC equipment is expensive. Whether you're replacing systems in your own shop or helping a customer install a new heat pump, the costs add up fast.
The federal government offers HVAC tax credits for energy-efficient systems, and if you know how to use them, they can knock a serious chunk off your tax bill. You can get REAL money back, not just a feel-good rebate that barely covers shipping.
For HVAC contractors, these credits matter twice. First, you can claim them when you upgrade your own facilities or equipment. Second, you can help your customers qualify for credits, which makes you more valuable than the guy down the street who just quotes a price and leaves.
This guide breaks down which credits are available in 2025, who qualifies, and how to use them without getting lost in IRS forms.
At Therapeutic Tax Solutions, we help HVAC contractors navigate tax credits, identify savings opportunities, and build more wealth with smart financial strategies. Here's what you need to know:
What Are HVAC Tax Credits?
Tax credits lower the amount you owe the IRS, dollar for dollar. They're not the same as deductions, which just reduce your taxable income. A credit directly cuts your tax bill, which makes it way more valuable.
If you owe $5,000 in federal taxes and claim a $2,000 heat pump credit, you now owe $3,000. Simple math...big impact! There are two main credits HVAC contractors need to know about:
Energy Efficient Home Improvement Credit (25C credit): Covers upgrades like heat pumps, central air conditioners, furnaces, water heaters, and insulation. You can claim up to 30% of the cost, with annual limits depending on what you install.
Residential Clean Energy Credit: Covers bigger projects like geothermal heat pumps, rooftop solar, and battery storage. Also worth 30% of eligible costs, and it runs through December 31, 2032.
When you understand how these credits work, you can plan your own upgrades smarter and become a go-to resource for customers trying to figure out if that new system is worth it.
Refundable vs Nonrefundable Tax Credits
Most HVAC tax credits are nonrefundable, which means they can only reduce what you owe. They won't generate a refund if your tax bill hits zero.
For example, let's say your company qualifies for a $2,000 heat pump credit, but you only owe $1,500 in federal taxes. You'll zero out your bill, but the IRS won't send you a check for the leftover $500. It just disappears.
Refundable credits do exist, but they're rare. However, they can still save you serious money when you time them right. That's where planning comes in. Work with someone who knows tax strategy (like us! đź‘‹), and you can structure upgrades to maximize what you claim year after year.
Who May Qualify for Tax Credits?
These credits apply to improvements on existing properties, not new construction. So if you're building a new shop from the ground up, you're out of luck. But if you're upgrading what you already own, you might be in.
HVAC contractors benefit from these credits in two ways:
Your own business property: Upgrades to your office, warehouse, or service facility can qualify if they meet efficiency standards. Install a new heat pump in your shop? That could be a $2,000 credit.
Your customers' projects: When you know which systems qualify, you can guide customers through the process and close more deals. Being the contractor who helps them save on taxes gives you a huge edge over the competition.
A few rules to keep in mind:
Systems must meet Energy Star or Consortium for Energy Efficiency (CEE) standards
Credits are claimed in the tax year the work is completed
Annual limits apply ($2,000 for heat pumps, $1,200 combined for most other improvements)
Therapeutic Tax Solutions - Tax Credits Are Great, But Only If You Claim Them
Many HVAC contractors install qualifying systems, miss the credit, and leave thousands of dollars on the table. They're busy running a business and don't have time to dig through IRS forms.
That's where we come in.
At Therapeutic Tax Solutions, we work with HVAC contractors year-round to build proactive tax strategies that save you money. That includes:
Identifying which upgrades qualify for credits: whether you're improving your own facilities or advising customers on their projects.
Timing your investments strategically: so you maximize credits across multiple tax years instead of blowing your annual limit in one shot.
Tracking and documenting everything: manufacturer certifications, receipts, and compliance details so your claims hold up if the IRS comes knocking.
Planning around your tax liability: because a $2,000 credit doesn't help if you only owe $500. We help you structure deductions and credits to get the most value.
We handle the paperwork, answer the confusing questions, and make sure you're not leaving money on the table.
Our full service includes bookkeeping with job costing, year-round tax planning, and financial advisory that helps you make smart decisions about equipment purchases, hiring, pricing, and growth.
Book a free discovery meeting to see how much you could be saving, and stop leaving money on the table every tax season!
Energy Efficient Home Improvement
Energy-efficient upgrades do more than lower utility bills. They also create opportunities to win more work, close bigger jobs, and position yourself as the contractor who knows how to save customers money. This is a big deal!
When you track which improvements qualify for credits, you can plan smarter upgrades for your own facilities and help customers make decisions that pay off at tax time.
Efficient Home Improvement Credit (25C Tax Credit)
The 25C credit (officially called the Efficient Home Improvement Credit) covers a wide range of HVAC systems and upgrades. The limits reset every year, which means you can claim it multiple times if you plan your projects right.
Using this credit strategically helps your bottom line and makes you more valuable to customers. When you walk into a bid and explain how they can save 30% on a qualifying system, you're not just another contractor with a quote. You're someone smart whom they can trust.
What HVAC Systems Qualify for Tax Credits in 2025?
Not every system qualifies, so double-check before you promise savings. In 2025, federal credits may be available for:
Heat Pumps: Air source heat pumps and heat pump water heaters qualify for up to $2,000.
Central Air Conditioners: Split systems and packaged units that meet Energy Star standards.
Furnaces and Boilers: Gas furnaces that hit the highest efficiency tier.
Water Heaters: High-efficiency heat pump models and some natural gas units.
Biomass Stoves: Must meet residential energy property efficiency ratings.
Windows, Doors, Skylights: Energy Star–rated replacements.
Insulation and Air Sealing: Materials that improve efficiency.
Clean Energy Systems: Rooftop solar, geothermal, battery storage, and fuel cells may qualify under the Residential Clean Energy Credit.
Always confirm details with the manufacturer before you install. Some credits also vary by customer zip code, so do your homework before making promises.
Heat Pumps
Heat pumps are one of the most popular systems for tax credits, and for good reason. They qualify for up to $2,000 annually, and demand is climbing as customers look for efficient heating and cooling in one unit. Promote these installs, and you're tapping into a market that wants what you're selling!
Air Source Heat Pump
Air source heat pumps hit the maximum $2,000 annual credit, which makes them a strong selling point. When you explain both the technical performance and the financial benefit, you show customers you understand the full picture.
That sets you apart when you're competing against contractors who only talk equipment specs.
Biomass Stoves
Biomass stoves aren't as common as heat pumps or central air, but they can qualify under residential energy property rules. If you work in rural areas or off-grid markets, knowing these credits gives you an edge in niches where other contractors don't bother competing.
How to Maximize Your HVAC Tax Savings
Getting the most out of tax credits takes a little planning. Here's what to do:
Choose qualifying equipment: Confirm that everything meets Energy Star and CEE standards before you buy.
Spread projects over time: Annual limits reset every year. If you stage your upgrades across multiple tax years, you can claim the credit more than once instead of maxing out in one shot.
Offer energy audits: Help customers figure out which upgrades will save them money. When you position yourself as an advisor instead of just a vendor, you win more work.
Stack improvements: Pair system replacements with insulation, air sealing, or smart thermostats. The 25C credit covers more than just equipment, so bundle upgrades and maximize what customers can claim.
Since the credit covers up to 30% of costs, keep your records clean. Save receipts, manufacturer certifications, and proof of compliance. Your accountant (or the IRS) will ask for them eventually.
How to Claim HVAC Tax Credits
When you invest in qualifying upgrades for your business, you'll file IRS Form 5695 (Residential Energy Credits) with your federal tax return. If you're helping customers claim credits, walk them through the same process.
Here's what you need to do:
Complete installation by December 31 of the tax year you want to claim it in.
Collect manufacturer certifications that prove the system meets efficiency standards.
File IRS Form 5695 with your tax return.
Record the credit on your 1040 to reduce what you owe in federal taxes.
If paperwork isn't your thing (and let's be honest, it's nobody's thing), this is where working with a tax advisor saves you time and headaches. We help HVAC contractors track qualifying expenses, organize documentation, and file everything correctly!
Federal Income Tax
Tax credits only work if you actually owe federal income tax. If your liability is already zero, a nonrefundable credit won't do anything for you.
That's why it's important to coordinate your upgrades with your overall tax strategy so you're claiming credits in years when they'll actually reduce what you owe. A qualified tax advisor can help you plan around your liability.
How the Inflation Reduction Act Impacts the HVAC Tax Credit
The Inflation Reduction Act (IRA) extended and expanded HVAC tax credits through December 31, 2032. That gives you over seven years to plan upgrades and claim credits without rushing.
Two main credits are still available:
25C Energy Efficient Home Improvement Credit: 30% of qualifying costs, with annual caps depending on what you install.
Residential Clean Energy Credit: Also 30%, covering solar, geothermal, fuel cells, and other clean energy systems.
These credits can be a sales tool, too. When you can explain how a customer saves 30% on a qualifying system, you're helping them make a smarter investment.
The IRA also rolled out state-level rebate programs that vary by zip code. Some states offer incentives for gas systems or other upgrades that don't qualify federally. Stay on top of what's available in your area, and you'll win more bids and build stronger customer relationships.
Credits Available
Multiple credits reset every year through December 31, 2032. That long timeline means you don't have to cram all your upgrades into one tax year. You can plan your projects, spread them out, and claim credits multiple times.
Tax Savings
Tax credits help you in two ways. First, they cut your own federal tax bill when you upgrade your business property. Second, they make you more valuable to customers by showing them how to save money on qualifying systems.
With credits available through 2032, you've got years to structure projects for maximum impact. Whether you're improving your own shop or helping customers navigate their options, these credits are worth understanding and using.
FAQs
Do All Systems Qualify for Tax Credits for HVAC Upgrades?
No, only systems that meet Energy Star or CEE standards qualify. Check with the manufacturer before you buy or install anything. Don't assume a system qualifies just because it's efficient. It also needs to hit specific thresholds.
Do Federal Tax Credits Mean You Get Money Back?
Not exactly. These credits reduce what you owe in federal taxes, but they're nonrefundable. If your credit is bigger than your tax bill, you don't get a refund for the difference. It just zeros out what you owe.
How Much Can I Save with Federal HVAC Tax Credits?
It depends on what you install. Heat pumps qualify for up to $2,000 annually, and central air conditioners, furnaces, windows, and doors hit a combined $1,200 annual limit. Plan accordingly.
Do Biomass Stoves Qualify as Energy-Efficient Home Improvement Tax Credits?
Yes, if they meet efficiency standards for residential energy property, but make sure to confirm certification before you promise anything to a customer.
How Long Will These Credits Be Available?
Both the 25C tax credit and the Residential Clean Energy Credit run through December 31, 2032. Annual limits reset every year until then, so you've got time to plan multiple upgrades.
Do New Builds Qualify for HVAC Tax Credits?
No, these credits apply to improvements on existing properties, not new construction. If you're building a new shop from scratch, you won't qualify. But some state or utility programs might offer other incentives, so it's worth checking locally.
The Bottom Line
Tax credits can save you thousands of dollars, and they also give you a strong selling point when customers are trying to decide between you and the next contractor.
But HVAC business owners often stumble on this because they're too busy running jobs to track every IRS form and manufacturer certification.
At Therapeutic Tax Solutions, we work with 7- and 8-figure HVAC contractors to build year-round tax strategies that identify every credit and deduction you qualify for and track your expenses with job costing and inventory accounting built in.
Most importantly, we're your financial advisory team. We can help you answer questions like "Should I buy that new van?" and "Can I afford to hire another tech?" and "Am I pricing jobs right?".
Stop guessing at your numbers and leaving money on the table. Book a free discovery meeting, and let's figure out how much you could be saving.
