If you installed a heat pump in 2025, you can claim up to $2,000 back on your federal taxes. But filing for this credit requires the right form, the right codes, and knowing exactly which lines to fill out. This guide walks Bay Area homeowners through the entire process with real-world examples.
What Is the Heat Pump Tax Credit?
The Section 25C Energy Efficient Home Improvement Credit offers:
- 30% of total installation cost (equipment + labor)
- Up to $2,000 maximum for heat pumps
- Non-refundable credit (reduces tax owed, but no refund beyond zero)
- Annual limit (you can claim it each year you make qualifying improvements)
Critical deadline: This credit expires December 31, 2025. Installations after this date will not qualify under current law.
Quick Answers: Heat Pump Tax Credit 2025
How much can I get from the heat pump tax credit? You can claim 30% of your total heat pump installation cost (equipment + labor) up to a maximum of $2,000 per year.
What form do I use to claim the heat pump tax credit? IRS Form 5695, Part II (Energy Efficient Home Improvement Credit). This is filed with your federal tax return.
Do I need to itemize deductions to claim the credit? No! The 25C credit is a tax credit, not a deduction. You can claim it even if you take the standard deduction.
What if my tax liability is less than $2,000? The credit is non-refundable – it can reduce your tax to zero but won’t create a refund. If your tax liability is $1,500, you’d only receive a $1,500 credit.
What You’ll Need Before Filing
Gather these documents before starting Form 5695:
1. Contractor Invoice showing:
- Equipment make and model
- Installation date
- Itemized costs (equipment and labor separately)
2. Manufacturer’s QM Code (Qualified Manufacturer ID) – See the table below for common codes
3. AHRI Certificate – Your contractor should provide this upon request
4. Your Form 1040 – To determine your tax liability (line 18)
QM Codes for Heat Pump Brands
For 2025 installations, the IRS requires a 4-digit Qualified Manufacturer (QM) code. Here are the codes for brands commonly installed in the Bay Area:
| Brand | QM Code | Parent Company |
|---|---|---|
| Carrier | N8H2 | Carrier Global |
| Bryant | N8H2 | Carrier Global |
| Payne | N8H2 | Carrier Global |
| Daikin | I7Q6 | Daikin Industries |
| Goodman | I7Q6 | Daikin Industries |
| Amana | I7Q6 | Daikin Industries |
| Mitsubishi | E8X7 | Mitsubishi Electric |
| Trane | B8T9 | Trane Technologies |
| American Standard | B8T9 | Trane Technologies |
| Lennox | L7S0 | Lennox International |
| Rheem | K3A8 | Rheem Manufacturing |
| Bosch | K3M2 | Bosch |
| Fujitsu | F8N3 | Fujitsu General |
| LG | S8T5 | LG Electronics |
Important: Always verify your QM code with your HVAC contractor or manufacturer before filing. Codes are updated periodically, and your contractor should provide the correct code with your installation paperwork.
At Bay Area Climate Control, we install Carrier equipment (QM code: N8H2) and provide all necessary documentation for tax credit claims.
Eligibility Requirements
Your home must:
- Be your primary residence in the United States
- Be where you live most of the year
Your heat pump must:
- Meet or exceed ENERGY STAR Most Efficient criteria
- Be installed by December 31, 2025 to qualify
- Have a thermal efficiency of at least 75% (for biomass systems)
Who doesn’t qualify:
- Rental properties where you don’t live
- New construction (different credits apply)
- Heat pumps that don’t meet efficiency requirements
Step-by-Step: Filling Out IRS Form 5695
Form 5695 has two parts. For heat pumps, you’ll use Part II: Energy Efficient Home Improvement Credit.
Lines 17a-17c: Eligibility Questions
- 17a: Check “Yes” confirming improvements are in your main U.S. home
- 17b: Check “Yes” confirming components are expected to last 5+ years
- 17c: Check “Yes” confirming you are the original user of the property
Line 18: Main Home Address
Enter the address where the heat pump was installed.
Lines 19-28: Other Improvements (Skip if N/A)
These lines cover windows, doors, insulation, and home energy audits. Skip to line 29 if you only installed a heat pump.
Line 28: Total of other improvements (maximum $1,200 for this category)
Lines 29a-29h: Heat Pumps and Water Heaters
This is where you claim your heat pump credit.
Line 29a: Enter your heat pump’s QM code and cost
- Format: QM code, then dollar amount
- Example: “N8H2 $14,500”
Line 29b: If you installed multiple heat pumps, enter additional units here (enter 0 if none)
Line 29c: Heat pump water heater QM code and cost (if applicable)
Line 29d: Total heat pump costs (add 29a + 29b)
Line 29e: Biomass stoves/boilers (skip if not applicable)
Line 29f: Total biomass costs
Line 29g: Add lines 29d + 29f together
Line 29h: Multiply line 29g by 30% (0.30). Maximum is $2,000.
Lines 30-32: Calculating Your Credit
Line 30: Add line 28 (other improvements) + line 29h (heat pump credit)
Line 31: Enter your tax liability from Form 1040, line 18
Line 32: Enter the smaller of line 30 or line 31. This is your actual credit.
Transfer to Form 1040: Report Line 32 on your federal tax return.
Complete Example: Filing for a Carrier Heat Pump
Let’s walk through a real example for a Bay Area homeowner:
The Scenario
Homeowner: Mike in Walnut Creek
Equipment: Carrier Infinity 26 Heat Pump with Greenspeed Intelligence
Total installed cost: $16,500 (equipment + labor)
Tax liability (Form 1040, line 18): $6,800
Form 5695 Entries
| Line | Description | Mike’s Entry |
|---|---|---|
| 29a | Heat pump QM code and cost | N8H2 $16,500 |
| 29b | Additional heat pumps | — |
| 29c | Heat pump water heater | — |
| 29d | Total (29a + 29b) | $16,500 |
| 29g | Total (sum 29a-29f) | $16,500 |
| 29h | Line 29g × 30% (max $2,000) | $2,000 |
| 30 | Line 28 + Line 29h | $2,000 |
| 31 | Tax liability (from 1040) | $6,800 |
| 32 | Smaller of line 30 or 31 | $2,000 |
The Result
Mike claims the full $2,000 credit on his tax return. Since his tax liability ($6,800) exceeds his credit ($2,000), he gets the maximum benefit.
Note: If Mike’s tax liability were only $1,200, he could only claim $1,200. The credit is non-refundable—it reduces your tax to zero but won’t create a refund.
What About the $3,200 Annual Cap?
You may have seen a $3,200 annual limit mentioned. Here’s how it works:
The total combined cap for ALL 25C improvements is $3,200 per year:
- $1,200 maximum for windows, doors, insulation, electrical panels, and home energy audits
- $2,000 maximum for heat pumps, heat pump water heaters, and biomass stoves/boilers
So if you install a heat pump AND new windows in the same year, you could potentially claim up to $3,200 total ($2,000 for the heat pump + $1,200 for windows).
Stacking Credits and Rebates
The federal tax credit can be combined with other incentives:
Federal Tax Credit: Up to $2,000 (via Form 5695)
HEEHRA Rebates: Up to $8,000 for income-qualified households (requires using a certified contractor)
TECH Clean California: Additional rebates for electrification projects
Local Utility Rebates: Check with PG&E or your local utility for current offers
Total potential savings: $10,000+ when all incentives are combined.
Important note: You may need to subtract certain rebates from your cost basis before calculating the tax credit. Consult a tax professional for your specific situation.
Common Questions
Can I claim the credit if I got utility rebates?
Generally yes, but you may need to subtract certain rebates from your cost basis. State and utility rebates typically don’t reduce your credit, but check with a tax professional.
What if I installed the heat pump late in December?
As long as the installation was completed by December 31, 2025, you qualify. Keep your dated invoice as proof.
Can I claim this credit every year?
Yes, through 2025. If you make qualifying improvements in multiple years, you can claim up to $2,000 for heat pumps each year.
What if I can’t use the full credit this year?
Unfortunately, the credit is non-refundable with no carryforward provision. You can only claim up to your tax liability for the year.
Do both spouses need to file together?
If you file jointly, you can combine your tax liabilities. If married filing separately, each spouse claims their proportionate share.
What Happens After 2025?
The 25C tax credit expires December 31, 2025. There are currently no confirmed plans to extend it. If you’re considering a heat pump, installing before year-end is the only way to capture this federal incentive.
However, California-specific rebates like TECH Clean California and HEEHRA may continue into future years. Contact us for current rebate information.
Documentation to Keep
Keep these records for at least 3 years in case of an IRS audit:
- Itemized invoice with model numbers, installation date, and total cost
- Manufacturer’s 4-digit QM code
- Manufacturer certification statement (available from contractor)
- AHRI certificate (if applicable)
- Photos of installed equipment (optional but helpful)
You don’t need to submit these with your tax return—just keep them for your records.
How Bay Area Climate Control Helps
When you install a heat pump with Bay Area Climate Control, we provide all documentation needed for your tax credit claim:
- Detailed invoice with model numbers and installation date
- Manufacturer’s QM code (N8H2 for Carrier equipment)
- AHRI certificate confirming efficiency ratings
- Manufacturer’s certification statement for tax purposes
Our paperwork is designed to make tax filing straightforward. We’ve helped hundreds of Bay Area homeowners claim their credits successfully.
Ready to Claim Your $2,000 Tax Credit?
If you’re considering a heat pump installation, now is the time to act. With the 25C tax credit set to expire at the end of 2025, installing this year ensures you capture the maximum federal benefit.
Use our HVAC Installation Cost Estimator to get an instant estimate that includes the federal tax credit calculation, or contact us for a personalized quote.
Disclaimer: This article provides general information about the 25C tax credit and IRS Form 5695. It is not tax advice. Consult a qualified tax professional for guidance specific to your situation.