Mark O. Neumeister
Sep 2, 2025
Homeowners looking to make energy-efficient upgrades or invest in renewable energy systems have just a few months left to take advantage of two powerful federal tax incentives: the Efficient Home Improvement Credit and the Residential Clean Energy Credit. Both are set to expire on Dec. 31, 2025, under the recently enacted 2025 Act (often referred to as the One Big Beautiful Bill or OBBB). These credits, originally expanded under the Inflation Reduction Act of 2022, were designed to encourage homeowners to reduce their carbon footprint and lower energy bills. But with the 2025 Act cutting them short—seven years earlier than planned—time is of the essence.
Home Efficiency Credit
The Energy Efficient Home Improvement Credit allows homeowners to claim 30% of the cost of qualifying energy-efficient improvements, up to an annual maximum of $1,200. Eligible upgrades include insulation, exterior doors and windows, air sealing materials, and certain HVAC systems. A separate $2,000 annual limit applies to high-efficiency heat pumps, heat pump water heaters, and biomass stoves or boilers.
Labor costs for installing HVAC systems and electrical upgrades can be included, but not for insulation or windows. Importantly, the credit is nonrefundable and cannot be carried forward—meaning it only offsets taxes owed in the year the improvements are installed.
Residential Clean Energy Credit
This credit covers 30% of the cost of installing renewable energy systems such as solar panels, solar water heaters, geothermal heat pumps, wind turbines, battery storage (with at least 3 kWh capacity), and fuel cells. Unlike the home improvement credit, there is no annual or lifetime dollar cap (except for fuel cells), and unused credits can be carried forward to future tax years.
To qualify, the property must be installed—not just purchased—by the end of 2025. The credit applies to both primary and secondary residences, including homes owned or rented by the taxpayer, though landlords are not eligible.
Act Now
Given the time needed to plan, purchase, and install these systems, homeowners are urged to act quickly. To claim either credit, homeowners must file IRS Form 5695 with their 2025 tax return. Documentation, including receipts and certification statements, should be kept for verification.
Final Thoughts
These credits offer a rare opportunity to reduce both your carbon footprint and your tax bill. But with the clock ticking toward a hard deadline, the window to act is closing fast. Whether you’re considering solar panels, a new heat pump, or simply better insulation, 2025 may be your last chance to make it count.