The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, terminated both the Section 25C Energy Efficient Home Improvement Credit and the Section 25D Residential Clean Energy Credit for property placed in service after December 31, 2025. If you completed qualifying improvements in 2025, you can still claim these credits on your 2025 return using IRS Form 5695. For 2026 installations, the federal credits are gone.
What Was the Section 25D Residential Clean Energy Credit?
Section 25D covered major clean energy installations: solar panels, solar water heaters, geothermal heat pumps, small wind turbines, and battery storage systems with a minimum capacity of 3 kilowatt-hours. The credit equaled 30% of the cost with no maximum dollar cap. A $30,000 solar installation in 2025 would generate a $9,000 credit.
Section 25D: Residential Clean Energy
30% with No Dollar CapQualifying systems: Solar electric panels, solar water heaters, geothermal heat pumps, small wind turbines, battery storage (minimum 3 kWh capacity)
Credit rate: 30% of total installed cost, including labor
Dollar limit: None. The 30% applies to the full project cost with no cap.
Carryforward: Unused credit carries forward to future tax years. If the credit exceeds your 2025 tax liability, the remainder carries forward.
Principal residence: Required for most systems. Battery storage is an exception and does not require a principal residence.
Last year to qualify: System must have been placed in service on or before December 31, 2025.
What Was the Section 25C Energy Efficient Home Improvement Credit?
Section 25C covered a broader range of efficiency upgrades: heat pumps, insulation, windows, exterior doors, electrical panels, roofing, and home energy audits. Unlike Section 25D, it carried a strict annual cap with no carryforward. Unused amounts were forfeited.
Section 25C: Energy Efficient Home Improvement
Up to $3,200 Per YearAnnual cap: $3,200 total, structured as two sub-limits:
Heat pumps (air source and geothermal), biomass stoves, and boilers: up to $2,000
All other improvements (insulation, windows, doors, electrical panels, energy audits): up to $1,200
- Windows: $600 maximum
- Exterior doors: $250 per door, $500 total
- Home energy audits: $150 maximum
Carryforward: None. Unused credit is forfeited. It cannot roll into a future year.
Property requirement: Must be your principal residence. New construction does not qualify.
Last year to qualify: Property must have been placed in service on or before December 31, 2025.
How to Claim These Credits on Your 2025 Return
Both credits are reported on IRS Form 5695. Part I covers Section 25D (clean energy); Part II covers Section 25C (home improvement). Keep all contractor invoices and manufacturer certifications showing the system meets the required efficiency standards.
For Section 25C, manufacturers are required to certify that their products meet IRS efficiency thresholds. Ask your contractor for the manufacturer's written certification before filing. For Section 25D, the contractor invoice is generally sufficient documentation.
The 2025 return is due April 15, 2026. If you need more time, an automatic six-month extension pushes the filing deadline to October 15, 2026. The extension covers filing only. Any tax owed remains due April 15, 2026, to avoid interest and penalties.
What Energy Incentives Remain in 2026?
Federal residential energy credits are gone for new 2026 improvements. A few alternatives remain:
State tax credits. Many states have their own energy efficiency or solar credits that were not affected by OBBBA. Check your state's energy office or department of revenue for current programs.
Utility rebates. Most electric utilities offer cash rebates for qualifying upgrades, including heat pumps, smart thermostats, and insulation. Contact your utility company directly.
HOMES and HEAR rebates. These Inflation Reduction Act rebate programs are administered at the state level and may still be available depending on your state's implementation status.
Commercial properties. The Section 179D energy-efficient commercial building deduction was not repealed by OBBBA and continues to apply to qualifying business-owned buildings.
For other OBBBA changes affecting your individual tax return, see EV Tax Credit Changes Under OBBBA. For year-round planning to minimize your tax bill, visit our individual tax preparation services.
Have questions about energy credits or your 2025 return? Contact TS CPA for a free consultation. We respond within the same day.