In July 2025, a new federal law nicknamed the “Big Beautiful Bill” was signed into effect, bringing big changes to home energy incentives. Officially called the One Big Beautiful Bill Act (OBBBA), this ends key federal tax credits for residential HVAC upgrades and solar installations at the end of 2025.
Homeowners who planned to rely on these incentives now face a shorter timeline. Below we break down what’s changing and how it impacts the average homeowner looking to install a heat pump or solar panels.
The Residential Energy Efficient Home Improvement Tax Credit (Section 25C) which many homeowners use for HVAC improvements like heat pumps, efficient furnaces, insulation, and windows – is being sunset earlier than expected.
This credit currently covers 30% of the cost of qualifying home upgrades (with caps up to $3,200 per year). Under the Inflation Reduction Act (IRA) of 2022, 25C was originally available through 2032. The new bill cuts that timeline: any improvements placed in service after December 31, 2025 won’t qualify for the federal 25C credit. In practical terms, homeowners have until the end of 2025 to install eligible HVAC upgrades (such as high-efficiency heat pumps) if they want to claim up to the $2,000 heat pump tax credit portion.
Tl;DR: The 25C Federal tax credit, most commonly used for heat pumps and heat pump water heaters, will be gone at the end of 2025.
Home solar incentives are seeing a similar rollback. The Residential Clean Energy Credit (Section 25D) – widely known as the 30% federal solar tax credit for installing solar panels (and home batteries, solar water heaters, etc.) will expire at the end of 2025, much earlier than planned. This credit has been a cornerstone of solar affordability, effectively giving homeowners a dollar-for-dollar tax reduction equal to 30% of their solar installation cost. Under previous law (the IRA), the 30% solar credit was set to continue into the 2030s (stepping down after 2032). The Big Beautiful Bill accelerated its end by nearly a decade. Now, systems installed after December 31, 2025 will not receive any federal solar tax credit.
Tl;DR: The 25D Federal tax credit for residential solar will be gone at the end of 2025.
As shown above, both credits that were created or expanded by the IRA are now ending on an identical schedule: no new residential credits after December 31, 2025 for solar or efficient HVAC upgrades. Homeowners essentially have a 5 month runway (end of 2025) to take advantage of these federal incentives before they go away.
Any installations completed in 2026 or later will not receive these federal credits, barring new legislation.
Higher upfront costs: Without federal tax credits, the cost of home energy upgrades will rise. A $30,000 solar system that currently costs about $21,000 after the 30% credit will cost the full $30,000 in 2026. A $10,000 heat pump will no longer benefit from the $2,000 credit. Homeowners will need to budget for these higher net prices.
Reduced return on investment: Removing the credits means a longer payback period for solar and efficient HVAC systems. Although utility savings still help, homeowners may find the financial return less compelling without the early boost from federal incentives.
Urgency to act: For those already considering solar or HVAC upgrades, now is the time to move forward. Many homeowners are expected to book projects in 2024 and 2025 to secure the federal credits. Delays in scheduling, permitting, or equipment availability could push installations into 2026, making early planning essential.
Alternative incentives remain: State, city, and utility rebate programs are not affected by the federal changes. These can still offer meaningful savings. For example, Colorado provides heat pump rebates and state tax credits, and utilities often offer incentives for efficient systems. Homeowners should research local programs or speak with contractors to explore available options.
Market effects: The changes may create a temporary surge in demand followed by a slowdown in 2026. Some contractors may respond with new financing or promotions to keep projects appealing. For homeowners, 2025 could be the last opportunity in the near future to claim major federal savings on solar and HVAC upgrades.
Bottom line: With federal tax credits ending after 2025, homeowners should act soon to maximize savings. Projects completed before the deadline will still qualify. After that, the decision to upgrade will depend more on local incentives and long-term energy savings. Consulting with professional installers can help ensure your project meets all requirements and delivers the best value.
Act before these tax credits are gone! UniColorado has been designing and installing heat pump systems in Colorado for over a decade. Unlike many contractors who place rebate risks and waiting periods on homeowners, we immediately apply your Xcel rebate as an upfront discount, saving you money from day one.
With UniColorado, you get the peace of mind that comes from thousands of successful heat pump installations combined with hassle-free, upfront rebate savings.
