A budget bill narrowly approved by the U.S. House early Thursday terminates three long-standing federal tax credits that boosted the HVAC industry and helped provide people with increased energy efficiency in their homes.
H.R. 1, dubbed “The Big Beautiful Bill Act,” passed the House on a 215-214 vote, with two Republicans joining House Democrats in voting against it and one Republican voting “present.”
The bill, which moves to the Senate, would eliminate the 25C, 25D, and 45L tax credits, which originated with the Energy Policy Act of 2005 and were enhanced through the Inflation Reduction Act of 2022. The bill would eliminate the credits after this year.
The 25C credit, also known as the Energy Efficient Home Improvement Credit, offers homeowners a 30% credit for the purchase and installation of qualified energy-efficient HVAC equipment, as well as for efficiency measures such as added insulation, new doors, and air-sealing. For most improvements, the credit is capped at $1,200 a year, except for a few specific items such as heat pumps, which are subject to a $2,000 cap and considered separately from other improvements.
More than 2.3 million households took advantage of the 25C credit in 2023, with an average credit of nearly $900.
The 25D credit, also called the Residential Clean Energy Credit, is a 30% credit with no dollar amount cap. It applies to home improvements, such as geothermal heat pumps, wind turbines, and solar panels, that harness renewable energy, and to energy storage technology.
In 2023, approximately 1.2 million households took advantage of the Residential Clean Energy Credit.
The 45L tax credit is available to home builders who construct homes that meet specific energy-efficiency standards, and is worth up to $2,500 for a single-family home. The efficiency of the entire home is considered for a 45L credit, and the HVAC system can be part of that equation.
HVAC industry groups had been lobbying to protect the credits, and ACCA, which backs the continuation of 25C, is prepared to move that battle to the Senate and beyond, according to Sean Robertson, ACCA’s vice president of membership, advocacy, and events.
“This process is far from complete, and the Senate will still get to have its say. We were encouraged by early assurances that Congressional leaders would use ‘a scalpel, not a sledgehammer,’ in addressing energy efficiency tax incentives. Unfortunately, the House tax bill looks much more like the latter,” Robertson said before the bill was approved in the House. “Even if we lose 25C in the budget reconciliation process, we will keep up the fight in annual tax extender packages, as we did for the decade prior to the IRA. We are encouraged that 21 House Republicans recently signed a letter supporting 25C and look forward to partnering with them to support the credit over the coming months.”