What the Section 25C credit actually does
The Energy Efficient Home Improvement Credit (IRS Section 25C, expanded by the 2022 Inflation Reduction Act) is a non-refundable federal income tax credit. You take it on your annual federal tax return (currently filed via IRS Form 5695). It is NOT a rebate from the manufacturer or contractor - we cannot reduce your invoice by the credit amount; you receive the tax savings when you file.
The credit is currently available through tax year 2032 under current law. It is non-refundable, meaning it can reduce your tax liability to zero but does not generate a refund beyond that. You must have federal tax liability in the year of the installation to use the credit - and any unused portion typically does NOT carry forward.
Specific HVAC categories and amounts (2026 filing year)
- Heat pumps (air-source) and heat pump water heaters: 30 percent of qualified expenses, up to $2,000 per year. Eligibility currently requires ENERGY STAR Most Efficient certification.
- Central air conditioners: 30 percent of qualified expenses, up to $600 per year. Eligibility requires meeting the ENERGY STAR Most Efficient criteria for the relevant year (currently SEER2 16+ for split systems).
- Natural gas, propane, or oil furnaces / boilers: 30 percent up to $600 per year. AFUE 97+ for furnaces, ENERGY STAR Most Efficient certified.
- Electrical panel upgrades enabling the above (when needed): 30 percent up to $600 per year.
- Annual home energy audits performed by certified auditors: 30 percent up to $150 per year.
Heat pumps fall under a SEPARATE $2,000 annual category that does NOT count toward the general $1,200 building envelope cap (which covers insulation, doors, windows, electrical, AC, furnaces). That means in a single tax year you can potentially claim up to $2,000 for a heat pump AND up to $1,200 for other improvements, for a total of $3,200.
What 'qualifying equipment' really requires
- AHRI Certified pair: indoor and outdoor units must be a matched, certified combination. A 4-ton condenser paired with a random air handler does NOT qualify, even if both individually look high-efficiency.
- ENERGY STAR Most Efficient certification: not the same as 'ENERGY STAR rated.' The 'Most Efficient' tier is a higher bar set annually by the EPA.
- SEER2 / HSPF2 ratings, not legacy SEER / HSPF: ratings published since the DOE's 2023 testing rule update. SEER2 is roughly 4-5 percent lower than the same equipment's old SEER rating because the new test reflects real-world duct conditions.
- Installed in YOUR primary residence (or a second home you own and use). Rentals do not qualify under Section 25C - landlords look to other depreciation vehicles.
Documentation we provide
When Avatex installs qualifying equipment, you receive in writing:
- AHRI Certified pair number on the invoice (lookup at ahridirectory.org).
- ENERGY STAR product list URLs / certification numbers for the equipment.
- Manual J load calculation showing the system was correctly sized (good practice; not strictly required for the credit).
- An itemized invoice separating equipment, labor, and any non-qualifying items - the IRS only credits qualifying expenses.
- Manufacturer's certification statement (a one-page document attesting that the equipment meets the credit criteria).
We do NOT prepare your taxes - that is your CPA or tax preparer's job. But we give them everything they need so the credit goes through cleanly.
Stacking with utility rebates
Federal tax credits often stack with utility rebates. Houston-area utilities (CenterPoint Energy, Reliant, TXU, Direct Energy, retail electric providers via the deregulated grid) periodically offer rebates for high-efficiency AC and heat pumps. Programs and amounts change frequently - we always check the current state of available rebates as part of any quote and tell you which apply, but we do not commit to specific rebate dollar amounts in writing because they change without notice.
If a quote anywhere - including ours - claims a specific rebate amount as a confirmed savings, ask to see the current program documentation. Reputable contractors will provide it. The federal tax credit is the most reliable line item; utility rebates are real but more variable.