Time’s running out for VA heating system tax credits
Learn how to take advantage of the Inflation Reduction Act tax credits in Virginia by installing an energy-efficient heating system.
As energy costs rise for some Virginians, homeowners are looking for real ways to lower their monthly bills without being uncomfortable. One of the most obvious ways to accomplish this is to upgrade to a more energy-efficient heating system.
While such a large purchase may seem out of reach, it’s not only a good long-term investment but also more affordable than you may think. As a result of the federal Inflation Reduction Act of 2022, homeowners can take advantage of expanded tax credits that make installing energy-efficient heat pumps, heat pump water heaters, and biomass stoves more affordable. Helpfully, the incentives can help offset the cost of the new equipment, as well as the installation and labor costs.
However, these savings won’t last forever. In fact, they’re now set to expire at the end of 2025, meaning that homeowners have a limited window to make upgrades and claim their benefits. Here’s your guide to navigating the available credits and choosing the right system to be efficient and affordably heat your home as winter looms on the horizon.
Incentives
The act expanded the Section 25C tax credit, which is now known as the Energy Efficient Home Improvement Credit. The tax credits under 25C are set to expire at the end of 2025. Originally, the credits were authorized through 2032, but now have a sunset date of Dec. 31, 2025, due to modifications from the One Big Beautiful Bill Act from earlier this year.
All eligible energy-efficient home improvements—such as the installation of heat pumps, heat pump water heaters, and biomass stoves—are eligible for a 30% tax credit. The credit maxes out at $2,000 per year.
Importantly, the credit extends to equipment, installation, and even labor costs. Before installation, you might consider having a home energy audit conducted, which is eligible for a $150 credit. ENERGY STAR recommends having an audit conducted to better understand which improvements would be most beneficial. Just make sure that it’s conducted by a qualified home energy auditor who has completed a qualified certification program.
Additionally, credits for other heating-related improvements, such as new insulation, windows, doors, and electrical panels, are available. ENERGY STAR notes that the optimization of insulation ahead of heating system upgrades can help reduce air leaks and reduce energy waste. The maximum annual credit for those items is $1,200.
Heating systems
Heating systems that are eligible for the credit include heat pumps, heat pump water heaters, and biomass stoves and boilers.
Heat pumps
Any heat pump that has received the ENERGY STAR Most Efficient designation is eligible for the credit.
Two options are available for claiming the credit: the cold climate pathway, for systems designed to work well in colder climates, and the cooling or dual-fuel pathway, for systems designed to work well in warmer climates or with another heating source like a furnace. Importantly, either pathway is eligible for the credit regardless of location, which previously wasn’t the case due to regional requirements.
The Carrier Infinity Variable-Speed Ultimate Cold Climate Heat Pump with Greenspeed Intelligence is one of the eligible models. Carrier describes it as one of its “most advanced heat pumps.”
Trane also offers the 18 TruComfort Variable Speed Heat Pump (5TWV8) that’s eligible for the credit. Its speed technology is designed to adjust output for consistent comfort and energy savings, the company said.
Heat pump water heaters
Heat pump water heaters are eligible for the $2,000 credit if they have earned the ENERGY STAR designation. They use electricity to direct heat from place to place as opposed to having to generate heat directly, which increases efficiency by two to three times that of conventional electric resistance water heaters.
The GE Profile GEOSPRING Smart Hybrid Heat Pump Water Heater 50-gallon-240V is one of the eligible models. The manufacturer says it’s up to 4.7 times more energy efficient. Additional models can be found here.
Biomass stoves and boilers
Biomass stoves and boilers are also eligible for the $2,000 credit. The stoves burn biomass fuel, such as agricultural crops and trees, wood, and wood waste like wood pellets, plants, residues, and fibers, to heat a home. To qualify for the credit, they must achieve a 75% thermal efficiency rating.
Regency Fireplace Products offers several wood stoves, wood inserts, and pellet stoves that are eligible for the credit.
Claiming the credits
The IRS is in the process of requiring manufacturers of heating systems to establish PIN numbers for eligible products. The numbers will eventually be associated with the tax credit claims. As a result, manufacturers will be designated as “qualified manufacturers.”
However, the process isn’t complete, which means those claiming the credits in 2025 will only have to provide the manufacturer’s four-digit qualified manufacturer code on their tax returns.
Importantly, the credit can only be claimed on your primary residence. Although the IRS recommends that systems be installed by a professional, those who are handy enough to install them on their own can still claim the credit.
The IRS notes that there isn’t a lifetime dollar limit on the credits, which means if you’ve received credits for past upgrades, you can still claim them for new upgrades made in 2025. Keep in mind that the credit is nonrefundable, meaning you can’t use the credit to get back more money than you owe in taxes and can’t apply any unused credit to tax liabilities in future years.
To claim the credit, homeowners should file Form 5695, Residential Energy Credits Part II, along with their tax return. Remember that the credit can only be claimed for the year the system was installed, not purchased.
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