New Furnace Tax Credit 2025: Complete Guide to Federal HVAC Tax Savings
Installing a new high-efficiency furnace in 2025 can save you up to $600 in federal tax credits while reducing your energy bills for years to come. The new furnace tax credit, part of the expanded federal tax incentives under the Inflation Reduction Act, offers homeowners substantial financial relief when upgrading to energy efficient home improvements.
This tax credit is part of a broader set of incentives for clean energy equipment and other energy efficient home improvements, providing opportunities for savings and environmental benefits when upgrading residential systems.
In addition to these incentives, installing a high-efficiency furnace delivers significant energy savings by reducing energy consumption, lowering your utility bills, and minimizing your home’s environmental impact.
This comprehensive guide covers everything you need to know about claiming your furnace tax credit in 2025, from eligibility requirements to filing procedures. Whether you’re replacing an aging system or installing your first high-efficiency unit, understanding these federal tax credits can significantly reduce your upfront costs while improving your home’s energy efficiency. You may qualify for a tax credit up to $3,200 for qualified energy-efficient improvements to your home made after Jan. 1, 2023.
What is the New Furnace Tax Credit?
The new furnace tax credit is part of the Energy Efficient Home Improvement Credit, officially known as the efficient home improvement credit under IRC Section 25C (an energy tax credit). This federal tax credit offers homeowners up to $600 for installing qualifying high-efficiency furnaces, representing 30% of the total installation costs including labor.
The credit applies to both gas and oil furnaces that meet strict energy efficiency standards, specifically those certified by ENERGY STAR and meeting the Consortium for Energy Efficiency (CEE) highest efficiency tier requirements. These types of equipment are considered energy property, and only certain eligible improvements qualify for the credit based on timing, property type, and manufacturer requirements.
Originally, this program was set to run through December 31, 2032, providing homeowners with nearly a decade of opportunities to claim these federal tax savings. However, following the passage of the “One Big Beautiful Bill” in July 2025, the expiration date for most energy-efficient HVAC tax credits, including the Energy Efficient Home Improvement Credit (Section 25C) for central air conditioners, furnaces, and air-source heat pumps, has been accelerated to December 31, 2025. The Residential Clean Energy Credit (Section 25D) for geothermal heat pumps will also end early.
Key features of the furnace tax credit include:
- Maximum credit: $600 per qualifying furnace
- Credit rate: 30% of total installation costs
- Duration: Available through December 31, 2025 (updated expiration)
- No lifetime limit: You can claim the credit multiple times during the program period
- Includes labor costs: Both equipment and installation expenses qualify
- Eligibility: Only qualifying improvements and eligible improvements are covered by the credit
The credit is nonrefundable, meaning it can reduce your federal income tax liability to zero but won’t generate a refund beyond the taxes you owe. However, it can be combined with other residential energy credits to maximize your overall tax savings.
Who Qualifies for the Furnace Tax Credit in 2025?
The furnace tax credit is available to homeowners who install qualifying equipment in their primary residence. The credit applies to both new and existing homes, as long as the property is used as a primary residence. Understanding eligibility requirements is crucial before making your purchase, as certain property types and ownership situations are excluded from the program. Other property owners, such as landlords or those who own but do not reside in the property, are not eligible for this credit.
Primary Residence Requirement
To claim the furnace tax credit in 2025, you must install the qualifying equipment in your main home where you live most of the time. The property must be:
- Your primary residence (not a vacation home or second property)
- Located in the United States
- Used as a personal residence, not for business purposes
You may claim a credit for improvements made to a second home in the U.S. that you live in part-time and do not rent to others.
Homeowner vs. Renter Considerations
Only property owners can claim the credit, which excludes renters even if they pay for the furnace installation. Additionally:
- Landlords: Cannot claim the credit for rental properties unless they also live in the home as their primary residence
- Cooperative owners: May qualify if they own their unit and use it as their main home
- Mobile home owners: Qualify if the home is their primary residence and they own the property
Business Use Limitations
If you use part of your home for business, you can still claim the credit, but only for the portion of the furnace that serves your personal residential use. The credit cannot be claimed for equipment serving exclusively business areas of your property.
Which Furnaces Qualify for the 2025 Tax Credit?
Not all furnaces qualify for the federal tax credit. The equipment must meet specific efficiency standards and certification requirements to be eligible. Qualifying furnaces are considered ‘residential energy property’ under federal guidelines, meaning they must meet certain efficiency standards to be eligible for tax credits. Understanding these technical specifications will help ensure your investment qualifies for the maximum credit.
Gas Furnace Efficiency Requirements
Gas furnaces, including those using natural gas or propane, must meet the following criteria:
- ENERGY STAR certification: The furnace must be ENERGY STAR certified
- CEE highest efficiency tier: Must meet or exceed the Consortium for Energy Efficiency highest efficiency tier standards
- AFUE ratings: Typically requires 97% Annual Fuel Utilization Efficiency or higher to qualify for the 2025 furnace tax credit
- AHRI directory listing: Must be listed in the Air-Conditioning, Heating, and Refrigeration Institute (AHRI) directory
The CEE highest efficiency tier represents the most stringent performance standards available, excluding the advanced tier, which is a separate category not included in the current qualification criteria for the furnace tax credit. This ensures only the most efficient conventional furnaces qualify for the credit.
Oil Furnace and Boiler Qualifications
Oil furnaces and hot water boilers have separate qualification paths:
- Oil furnaces: Must be rated for use with fuel blends containing at least 20% biodiesel, renewable diesel, or second-generation biofuel
- Hot water boilers: Must meet specific thermal efficiency rating requirements
- ENERGY STAR certification: Required for all qualifying oil equipment
- Efficiency standards: Must meet or exceed established performance benchmarks
These requirements reflect federal priorities for supporting cleaner-burning fuel systems and highly efficient heating equipment.
Furnace Tax Credit Amounts and Limits for 2025
Understanding how the credit is calculated and what limits apply helps you plan your investment and maximize your tax savings. The furnace tax credit follows a straightforward formula with specific annual and per-unit caps. There are annual limits on the amount of federal tax credit you can claim for HVAC equipment, meaning you can only claim up to a certain dollar amount each year. Federal HVAC tax credits allow homeowners to claim a maximum annual credit of up to $3,200 for qualifying HVAC upgrades made between 2023 and 2025.
Credit Calculation
The furnace tax credit equals 30% of your total qualifying costs, including both equipment and installation expenses, up to a maximum of $600 per furnace. Homeowners can claim 30% of the costs for upgrading heat pumps, with a maximum cap of $2,000.
| Installation Cost | Credit Calculation | Actual Credit |
|---|---|---|
| $1,500 | 30% × $1,500 | $450 |
| $2,000 | 30% × $2,000 | $600 (maximum) |
| $3,000 | 30% × $3,000 | $600 (maximum) |
| $4,000 | 30% × $4,000 | $600 (maximum) |
Annual Credit Limits
While individual furnace credits are capped at $600, you can combine them with other energy efficient upgrades up to an annual limit of $3,200 for all home improvement credits. This includes:
- Air conditioning systems, including air conditioners and central air conditioners (ENERGY STAR certified and meeting efficiency standards): Up to $600
- Heat pumps: Up to $2,000
- Water heaters: Up to $600
- Insulation and air sealing: Up to $1,200
- Exterior doors: Up to $250 per door, $500 total
- Exterior windows: Up to $600 total
Certain upgrades like doors and windows qualify as building envelope components for the credit.
Electrical Component Credits
If your furnace installation requires electrical upgrades to meet National Electric Code standards, those costs may also qualify for additional credits:
- Electrical panel upgrades: Up to $600 for 200+ amp capacity panels
- Branch circuit wiring: Costs may qualify if required for equipment operation
- Safety disconnects: Required electrical components can be included
The key requirement is that electrical work must be necessary for the furnace installation and meet current National Electric Code requirements.
How to Claim Your Furnace Tax Credit in 2025
Claiming your furnace tax credit requires proper documentation and filing procedures. The process is straightforward, but attention to detail ensures you receive your full credit without delays or complications. The same process applies when claiming credits for other qualifying improvements, such as installing solar panels, battery storage technology, and fuel cells.
Filing Requirements
To claim your furnace tax credit in 2025:
- Complete IRS Form 5695: Use Part II for the Energy Efficient Home Improvement Credit
- Attach to tax return: File Form 5695 with your federal income tax return for the year the furnace was installed
- Claim in installation year: You must claim the credit in the tax year when the furnace was placed in service, not when you purchased it
- Maintain records: Keep all documentation for at least three years after filing
Required Documentation for Furnace Tax Credit
Proper documentation is essential for claiming your credit and surviving potential IRS audits. You’ll need:
Manufacturer Documentation:
- Manufacturer’s certification statement showing AFUE ratings
- ENERGY STAR certification number
- CEE compliance verification
- Model number and specifications
Installation Records:
- Detailed receipts showing equipment costs
- Labor charges and installation expenses
- Date of installation (placed in service date)
- Contractor license information (if applicable)
Verification Documents:
- AHRI directory listing confirmation
- Proof of primary residence status
- Any relevant building permits
2025 Changes to Furnace Tax Credit Requirements
Beginning January 1, 2025, new requirements add an extra layer of verification to the furnace tax credit process. These changes aim to prevent fraud and ensure only legitimate, qualifying equipment receives credit benefits.
Qualified Manufacturer PIN System
The most significant change requires manufacturers to participate in a qualified certification program:
- Product Identification Number (PIN): Each qualifying furnace must have a unique PIN from the manufacturer
- Qualified Manufacturer status: Manufacturers must register as Qualified Manufacturers (QMs) with a four-digit code
- Tax return reporting: Homeowners must include both the PIN and QM code on their tax returns
Impact on Homeowners
These changes create new responsibilities for homeowners planning 2025 installations:
- Verify manufacturer participation: Confirm your chosen furnace manufacturer is a registered QM before purchasing
- Obtain PIN documentation: Ensure your installer provides the manufacturer’s PIN for your specific unit
- Updated tax forms: Form 5695 will likely include new fields for PIN and QM code reporting
Preparation Strategies
To avoid complications with 2025 installations:
- Research manufacturer status: Check with furnace manufacturers about their QM registration status
- Plan early installations: Consider completing installations before December 31, 2024, to avoid new requirements if possible
- Verify documentation: Ensure your contractor understands the new PIN requirements
Maximizing Your Furnace Tax Credit Savings in 2025
Strategic planning can help you maximize your federal tax savings by combining the furnace credit with other incentives and timing your improvements optimally. Homeowners can further increase their tax benefits by combining credits for renewable energy systems, such as solar or geothermal, with those for HVAC upgrades.
Combining Multiple Credits
The $3,200 annual limit for energy efficient home improvements allows you to stack multiple credits:
Example Combination:
- High-efficiency furnace: $600
- Heat pump water heater: $600
- Insulation upgrade: $1,200
- ENERGY STAR windows: $600
- Total annual savings: $3,000
Heat Pump vs. Furnace Considerations
Before committing to a furnace, consider whether heat pumps might offer better value:
- Air source heat pump credit: Up to $2,000 (higher than furnace limit)
- Geothermal heat pumps: May qualify for the residential clean energy credit with higher limits
- Year-round efficiency: Heat pumps provide both heating and cooling system benefits
- Climate considerations: Natural gas heat pumps and traditional air source heat pump technology work best in moderate climates
To maximize federal incentives for high-efficiency HVAC equipment, homeowners should take advantage of available heat pump tax credits under the Inflation Reduction Act. Heat pumps that meet the CEE highest efficiency tier qualify for a credit of up to $2,000 per year. Eligibility for the heat pump tax credit requires installation of new heat pumps with specific efficiency ratings.
State and Utility Incentives
Federal credits can often be combined with additional incentives:
- State tax credits: Many states offer their own energy efficient upgrades incentives
- Utility rebates: Local utilities frequently provide rebates for energy efficient HVAC system installations
- Manufacturer incentives: Some companies offer direct rebates on ENERGY STAR certified equipment
Research local programs before making your purchase, as some incentives have specific timing or contractor requirements.
Timing Considerations
Strategic timing can optimize your tax benefits:
- Tax liability assessment: Ensure you have sufficient federal income taxes to absorb the credit
- Annual limit planning: Spread major improvements across tax years if total costs exceed $3,200
- Future tax years: Since credits don’t carry forward, plan improvements for years with higher tax liability
Frequently Asked Questions About Furnace Tax Credits in 2025
Can I claim the credit for replacing an old furnace?
Yes, the furnace tax credit applies to replacement installations as long as the new equipment meets all efficiency and certification requirements. There’s no requirement that your existing home lack heating equipment.
Do installation costs count toward the credit?
Installation costs are included in the 30% calculation up to the $600 maximum credit. This includes labor, permits, and any necessary ductwork modifications required for the new furnace installation.
What if my furnace costs less than $2,000?
The credit equals 30% of your actual costs with no minimum purchase requirement. For example, a $1,500 installation would generate a $450 credit.
Can I carry forward unused credits to future tax years?
No, the Energy Efficient Home Improvement Credit is nonrefundable and cannot be carried forward. If your tax liability is less than your available credits, you lose the excess credit amount. The federal HVAC tax credits are nonrefundable, meaning they can reduce the tax bill to zero but will not generate a refund beyond taxes paid.
Do I need a home energy audit before replacing my furnace?
A qualified home energy auditor assessment is not required for the furnace credit, but you can claim a separate $150 credit for professional home energy audits. This assessment might help identify additional efficiency upgrades that qualify for federal tax incentives. A home energy audit for your main home may qualify for a tax credit of up to $150.
Can I claim credits for multiple furnaces?
Yes, if you install multiple qualifying furnaces (such as in a large home with multiple zones), you can claim up to $600 per furnace, subject to the $3,200 annual limit for all home improvement credits.
What about used or refurbished equipment?
Only new equipment qualifies for the federal tax credit. Used, refurbished, or reconditioned furnaces, even if they meet efficiency standards, are not eligible.
How do biomass stoves compare to gas furnaces for tax credits?
Biomass stoves that meet efficiency requirements can qualify for the same $600 credit as gas furnaces. However, they must meet specific emission and efficiency standards outlined in federal regulations.
Conclusion
The new furnace tax credit represents a valuable opportunity for homeowners to reduce the cost of energy efficient home improvement while lowering their long-term energy bills. With up to $600 available per qualifying furnace through the end of 2025, the program provides substantial financial incentives for upgrading to high-efficiency heating equipment.
Success with the furnace tax credit requires careful attention to eligibility requirements, proper documentation, and strategic planning to maximize your overall energy and cost savings. Remember that 2025 brings new PIN requirements, so verify manufacturer participation if you’re planning future installations.
Whether you’re replacing an aging system or upgrading for improved efficiency, the federal furnace tax credit can significantly offset your investment costs while contributing to a more energy efficient home. Start researching qualifying equipment and planning your installation today to maximize your 2025 tax savings and enjoy reduced energy bills for years to come.