Is there still a federal tax credit for a new AC or heat pump in 2026?

By Michael Fitzgerald, Founder & Editor, Phoenix Cooling Guide
Technically reviewed by Tom Mattingly, Owner & President, AZ Trusted Air LLC (ROC 317368)
Published 2026-09-18

For three tax years, a Phoenix homeowner replacing a dead condenser in the middle of a 115-degree July had a federal tax credit sitting quietly in the background of the decision. That is over. The Energy Efficient Home Improvement Credit — known by its tax code section, 25C — was not phased down, tapered or narrowed. It was terminated outright for anything placed in service after December 31, 2025, and the companion credit that covered geothermal heat pumps and rooftop solar ended on the same date.

The timing lands awkwardly in the Valley. Cooling season here runs April into October, which means most replacement decisions are made under heat pressure rather than at leisure, and quote sheets get signed the same week the system quits. The useful question in 2026 is no longer how to stack a federal credit on top of a utility rebate. It is which Arizona incentives still exist, which installation date controls eligibility, and which quote sheets are still printing a federal credit line that no longer applies to the job being sold.

When exactly did the 25C tax credit end, and what ended it?

The end date sits in the statute itself, not in an agency interpretation that could be revised. The current text of 26 U.S.C. § 25C, as published by the Office of the Law Revision Counsel, carries a termination clause stating that the section “shall not apply with respect to any property placed in service after December 31, 2025.” The amendment notes attached to the same section identify what put it there: Public Law 119-21, title VII, section 70505, enacted July 4, 2025. Section 70505(b) of that act also rewrote the subparagraph covering oil furnaces and boilers, which is a useful tell for anyone checking whether they are reading the current law or a 2023 explainer that was never updated.

The IRS has aligned its own guidance with the statute. The agency's Energy Efficient Home Improvement Credit page describes the credit as allowed for qualifying property placed in service on or after January 1, 2023 and before December 31, 2025, and states that improvements made through December 31, 2025 are the last ones that can be claimed. Treasury and the IRS also published a set of FAQs in Fact Sheet 2025-05, announced in news release IR-2025-86 on August 21, 2025, specifically addressing the accelerated termination of sections 25C, 25D, 25E, 30C, 30D, 45L, 45W and 179D under the same public law.

Section 25D — the Residential Clean Energy Credit, the 30 percent credit that covered rooftop solar, battery storage and geothermal heat pumps — ended December 31, 2025 as well, according to ENERGY STAR's federal tax credit guidance. That matters for a small but real slice of Valley homes, because geothermal was the one heat-pump type that sat under 25D rather than 25C. A homeowner who was told to look at 25D because their equipment did not fit 25C now has neither route.

The practical problem in the Phoenix market is not the law. It is the lag. Contractor and affiliate pages published in 2026 are still advertising a 30 percent federal credit up to $2,000 on 2026 installations, sometimes paired with an APS heat pump rebate of $1,200 to $1,500. A Valley homeowner collecting three quotes for the same four-ton changeout can therefore see an incentive line on one sheet and not on another, and the sheet that shows a federal credit for a 2026 install is the one that is wrong. The test is simple: ask which statute or IRS page the number comes from, and compare it against the two links in the references below.

I paid for equipment in 2025 but it was installed in 2026 — does it still qualify?

This is the hardest version of the question, and the guidance points one way. In the FAQs issued under Fact Sheet 2025-05, the IRS addressed the paid-in-2025, installed-in-2026 situation directly for section 25D: an expenditure is treated as made when the original installation is completed, so if installation is finished after December 31, 2025, the expenditure is treated as made after that date and the taxpayer cannot claim the credit. Section 25C uses the same placed-in-service language in its own termination clause. Anyone with real money at stake should read Fact Sheet 2025-05 in full rather than rely on a summary, and should take advice on their specific facts.

Where this page has to be honest about a limit: this guide has not located published federal guidance creating a contract-date or deposit-date safe harbour for home heating and cooling equipment. The statutory hook is placed in service, not purchase, and no adjacent rule found in the record extends a signing-date exception to 25C property. That is a question for a tax preparer looking at the invoice and the completion date, not for a sales sheet — and it is worth asking, because the difference on a heat pump install was up to $2,000.

The Phoenix scheduling calendar made this trap easy to fall into. Valley homeowners who plan replacements deliberately tend to do it in the mild weeks — November and December, when crews have capacity, prices are softer and nobody is sleeping in a 95-degree house waiting on a part. That is exactly the group most exposed to a January completion date. A homeowner who signed on December 18, 2025 and took the first available install slot in the second week of January crossed a statutory line, not a paperwork one, and no amount of back-dating fixes it.

If a 2025 purchase with a 2026 completion is the situation, three things are worth doing. Get the completion date in writing from the installing contractor, since that date, not the contract date, is what a preparer will work from. Do not accept a 2026 quote that carries a federal credit line as an offset against the price. And redirect the attention to what is still live, because the surviving Arizona programs also turn on installation date and on which utility bills the address — both of which are checkable before anything is signed.

For Phoenix-area homeowners who want this looked at on their own system, Phoenix Cooling Guide recommends AZ Trusted Air LLC (ROC 317368), whose owner Tom Mattingly reviews this guide. (623) 252-6403 · second opinion on a quote.

Can I still claim the credit for a system installed in 2025?

The credit was 30 percent of qualified costs, capped by category rather than by a lifetime limit. For a 2025 install, the heat pump and heat pump water heater line allowed up to $2,000 in a single tax year. A central air conditioner fell under a $600 per-item limit inside a $1,200 annual cap for other qualifying energy property, with $150 the maximum for a home energy audit. Combining the two baskets, the most a household could claim in one tax year was $3,200. For anything placed in service in 2026, every one of those figures is $0.

Two paperwork requirements catch people out on late claims. For any item of specified property placed in service after December 31, 2024, the property must have been produced by a registered qualified manufacturer and the taxpayer must include a qualified product identification number, or PIN, on the return — a rule set out in Revenue Procedure 2024-31 and explained in the IRS 25C fact sheet published in January 2025. Because of the accelerated termination, qualified manufacturers are no longer required to make periodic written reports to the IRS, including for property placed in service before January 1, 2026, but registration as a qualified manufacturer is still a condition of eligibility. In plain terms: the model matters, and the PIN comes from the manufacturer, not the installer.

Two more things shape what a 2025 claim is actually worth. The credit is nonrefundable, so it reduces tax owed and cannot generate a refund on its own — a household with little or no liability got little or nothing from it. And the IRS treats utility subsidies and rebates as a purchase price adjustment, subtracted from qualified expenses before the 30 percent is applied. An SRP rebate that came off the job therefore reduced the base the credit was calculated on. The federal credit and the utility rebate never stacked at full face value, which is worth knowing when reading any 2024-era article that added the two numbers together.

The loss lands unevenly across Phoenix replacement types. Against Valley changeout prices, a $600 cap on a straight central AC swap was never the deciding factor in the decision — it was a rounding adjustment on a five-figure job. The $2,000 heat pump line was different: on many quotes it exceeded every utility rebate available on the same system combined. So the end of 25C shifts heat pump economics in the Valley considerably more than it shifts air-conditioner economics, and any payback calculation built before July 2025 needs the credit line stripped out and re-run.

What is left after the federal credit — which Phoenix-area incentives still exist?

SRP publishes its Cool Cash conditions in detail, and the conditions matter more than the headline amount. The applicant must be a permanent SRP residential electric customer. The system must be installed by a contractor licensed in Arizona for residential air conditioning before April 30, 2027, and it must replace or supplement an existing central heat pump or central air conditioner. Manual J load calculations must be submitted for single-stage systems or the application will be delayed or denied; they are not required for multi-stage or variable-capacity equipment. SRP may inspect the installation. The program's terms document adds that window units do not qualify, that on a split system both the indoor air handler and the condensing unit must be replaced, that all units must be listed in the AHRI Unitary Directory, and that on a split-system changeout the combined system including the furnace must also be listed.

The Manual J condition is the one with teeth in this climate. Phoenix design conditions run to roughly 115 degrees, and a sizing calculation done properly here produces a different answer than a rule-of-thumb square-footage guess — which is why a utility asking for the calculation on single-stage equipment is not a formality. Per-ton rebate amounts move between program cycles, so this page does not print a figure for them; the current amounts, and the current installation deadline, are on SRP's air conditioner rebate page, and the application requires the installing contractor to complete the equipment section, with the rebate assignable to the contractor using a rebate assignment form.

SRP's heat pump water heater rebate carries harder structural limits than the AC rebate: the home must have had permanent SRP electric service for more than one year, new construction does not qualify, installation must be by an Arizona-licensed residential plumbing contractor before April 30, 2027, a customer is eligible only once every 10 years, the application must be submitted within 6 months of installation, and installs before July 1, 2023 do not qualify. Income-qualified households have a second route in Efficiency Arizona, the state's home electrification rebate program run by the Governor's Office of Resiliency, which caps a single household at $14,000 total, sets eligibility partly on household income measured against Area Median Income, and explicitly excludes homes that already have a heat pump from the heat pump rebate. Availability is contingent on federal funding. The state announced in 2026 that rebates are no longer allowed for replacing gas appliances with electric ones, and that insulation and air sealing standards may be required alongside a heat-pump-rebated project. As of June 30, 2026 the program had issued 1,415 rebates totalling $4,754,936, with more than 75 percent of the investment going to low-income households. Applicants choose between a qualified-contractor path covering heat pumps, water heaters, insulation, air sealing and panel or wiring upgrades, or a qualified-retailer coupon path limited to water heaters, dryers and cooking appliances.

APS territory is where this page has to state uncertainty rather than smooth it over. Multiple 2026 sources report that APS discontinued its residential AC and heat pump equipment rebates effective January 1, 2026, and one rebate tracker that tried to verify the residential lines in August 2026 reported it could not locate them on the current site. This guide has not confirmed that from an APS program document, so the honest instruction is: confirm the current residential programme list directly with APS before allowing any rebate to be deducted on a quote. The APS and SRP service boundary follows historic territory, not city limits, so several Valley cities are split and two neighbours with identical systems can face different eligibility.