Federal HVAC Tax Credits in 2026: What Changed

If you are a Bay Area homeowner searching for the 2026 federal HVAC tax credit, here is the short answer: it is gone. The Section 25C Energy Efficient Home Improvement Credit was terminated for equipment placed in service after December 31, 2025. A heat pump, furnace or air conditioner installed in 2026 does not qualify for a federal credit.

That is a real change from the last three years, and a lot of pages on the internet — including, until recently, this one — still describe the old rules. Below is what actually applies now, what you can still claim if you installed last year, and which California and utility programs are still worth a phone call.

What happened to the federal HVAC tax credit

Section 25C was expanded by the Inflation Reduction Act and was scheduled to run through 2032. That schedule was cut short. Under Public Law 119-21, enacted July 4, 2025, the credit terminates for property placed in service after December 31, 2025. The IRS published guidance covering the accelerated termination of 25C, 25D and several other energy provisions.

“Placed in service” is the operative phrase, and it is not the same as the date you paid or signed a contract. It generally means the date the equipment was installed and ready for use. If you paid a deposit in 2025 but the system was commissioned in 2026, talk to a tax professional before assuming anything.

Can I still claim anything?

Yes — but only for work already placed in service. If your qualifying heat pump, furnace, air conditioner, insulation or electrical panel work was placed in service in 2025 or earlier, that year’s credit still applies and you claim it on that year’s return. Terminating a credit going forward does not retroactively cancel a year you already earned.

Two situations worth flagging:

• If you installed qualifying equipment in 2025 and have not yet filed, the credit belongs on your 2025 return.
• If you installed qualifying equipment in an earlier year and missed the credit, amended returns are generally possible within the IRS time limits. That is a question for your tax preparer, not for us.

How to claim a 2025 installation

The mechanics have not changed for the years the credit still covers:

• Use IRS Form 5695 (Residential Energy Credits) and attach it to your Form 1040 for the year the equipment was placed in service.
• Keep your itemized invoice showing equipment model numbers, cost and installation date.
• Keep the Manufacturer's Certification Statement for the equipment, and report the product identification number (PIN) assigned by a qualified manufacturer on Form 5695, which the IRS requires for equipment placed in service in 2025. If you had work done by Cool Aid and cannot find yours, call us and we will send a copy.
• Remember it was non-refundable. The credit could reduce a tax bill to zero but did not generate a refund beyond that, and unused amounts did not carry forward.

We are HVAC contractors, not tax advisers. Confirm your own situation with a CPA or enrolled agent before filing.

What Bay Area incentives are still open

The federal credit and the California programs were always separate, so the end of 25C does not automatically end everything. It has, however, been a lean stretch for the state programs too:

• TECH Clean California — single-family heat pump incentives have been fully reserved since November 2025. No new reservations are being accepted.
• HEEHRA (California’s income-qualified rebate program) — fully reserved as of early 2026, also waitlisted.
• PG&E: its residential rebates page lists no HVAC rebates. Amounts and eligible models change by program cycle.
• BayREN: its Home+ heat pump rebate ended in April 2024; its EASE Home program helps income-qualified homeowners with insulation and duct sealing.
• City and municipal utility programs — Palo Alto (CPAU), Santa Clara and Silicon Valley Power territories run their own programs on their own schedules.

We deliberately do not publish current dollar amounts for these. They change mid-year, they run out, and a stale number on a contractor’s website is how homeowners end up budgeting around money that is not there. Call 1-800-266-5243 and we will tell you which programs are actually open the week you are deciding.

Planning a 2026 upgrade

If you were counting on a few thousand dollars of federal credit to make the numbers work, the honest advice is to re-run your budget without it. A few things that still hold:

• Efficiency still pays back through the bill, not the tax return. In the Bay Area’s mild climate a properly sized heat pump runs at high efficiency most of the year, and that saving does not depend on any program.
• Right-sizing matters more than chasing a tier. The old credit pushed people toward specific efficiency thresholds. With that gone, the better question is whether the system is correctly sized for your home — ask for a Manual J load calculation.
• Repair-versus-replace math has shifted. Without the credit, borderline replacements deserve a second look. Our repair vs replace guide walks through it.
• Financing is doing more of the work now. See our Bay Area HVAC financing guide for how to compare offers without getting caught by a promotional rate.

Frequently Asked Questions

Is there a federal HVAC tax credit in 2026?

No. Section 25C was terminated for property placed in service after December 31, 2025, so equipment installed in 2026 does not qualify for a federal credit.

I installed a heat pump in 2025 — can I still claim it?

Yes. The credit applies to the year the equipment was placed in service, so a 2025 installation is claimed on your 2025 return using IRS Form 5695. Keep the itemized invoice and the Manufacturer's Certification Statement, and report the product identification number (PIN) assigned by a qualified manufacturer on Form 5695, which the IRS requires for equipment placed in service in 2025.

What about the 25D credit for solar or geothermal?

Section 25D was terminated on the same date. Property placed in service after December 31, 2025 does not qualify.

Are California rebates still available?

Some are. TECH Clean California’s single-family heat pump incentives and California’s HEEHRA rebates are both fully reserved (HEEHRA is keeping a waitlist). Heat pump rebates from local electricity providers and city utilities are still open in much of the Bay Area; PG&E currently lists no residential HVAC rebates. Call us for current status before you buy.

Will the credit come back?

We have no way to know, and neither does anyone else quoting you a number. Do not budget a 2026 project around a credit returning.

Get an honest number for your project

Cool Aid Air Conditioning & Refrigeration has been installing and servicing HVAC and commercial refrigeration across the Bay Area since 1966. We will quote your job against the programs that are actually open, tell you plainly if a rebate you have read about has closed, and provide the documentation you need if you are claiming a prior-year installation.

Schedule your free consultation or call us at 1-800-266-5243.