Blog · 16 October 2026

Energy Efficient Home Improvement Credit Ends: §25C and §25D After 2025, Installation Dates, QMIDs and Form 5695 Carryforwards for US CPA Firms

By Keshav Bansal, CA

The energy efficient home improvement credit is gone for 2026 work, and so is its solar-and-battery sibling. The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) ended §25C for property placed in service after December 31, 2025 and §25D for expenditures made after that date. As SideMargin (Theo Marlow, Sept 23, 2026) put it, a heat pump, window or door installed in 2026 earns no federal credit, even if the client paid for it in 2025. For US CPA firms, the remaining work is on 2025 returns, amended returns and the Form 5695 carryforward that survives into 2026.

What OBBBA changed

Section 70505 of the Act amended 26 U.S.C. §25C(i), which now says the section “shall not apply with respect to any property placed in service after December 31, 2025.” Section 70506 amended §25D(h) so the credit “shall not apply with respect to any expenditures made after December 31, 2025”; before OBBBA, §25D ran through 2034 with a phase-down. The IRS repeats both dates in its OBBB FAQs (FS-2025-05, Aug. 21, 2025), and the 2025 Instructions for Form 5695 list the termination under What’s New.

Installation date controls, not payment date

This is the question clients will ask about a December 2025 deposit on a January 2026 install. Under §25D(e)(8)(A), an expenditure is treated as made when the original installation of the item is completed, and §25C(f)(1) applies rules similar to §25D(e)(8). The 2025 Form 5695 instructions say the same for both credits: costs are treated as paid when the original installation is completed. FS-2025-05 (Q7) answers the 25D version directly: if installation is completed after December 31, 2025, no credit, even if the property was paid for on or before that date. For new construction or reconstruction, the expenditure is treated as made when the taxpayer’s original use of the structure begins. The IRS credit pages put it simply: claim the credit for the tax year when the property is installed, not merely purchased.

The reverse case matters too. Work completed in December 2025 but invoiced or paid in January 2026 is tied to the completion date, so get the installer’s completion paperwork, not just the invoice date.

What 2025 work could still earn under §25C

Per the IRS and the 2025 Form 5695 instructions, the energy efficient home improvement credit equals 30% of qualified costs, with annual limits:

• $1,200 combined for building envelope components, residential energy property and home energy audits, with sub-limits of $600 per item of energy property (central air, gas/propane/oil water heaters, furnaces and boilers, qualifying panel upgrades), $600 for all windows and skylights, $250 per exterior door ($500 total) and $150 for a home energy audit.
• $2,000 separately for heat pumps, heat pump water heaters, biomass stoves and biomass boilers, so the IRS describes a credit of up to $3,200 a year.
• Labor: installation labor counts for energy property, but not for windows, doors, skylights or insulation.
• Home: an existing home in the United States, not a new home; landlords who do not live in the property cannot claim it.

SideMargin’s own worked example: a $9,000 heat pump (after rebates) plus $2,500 of windows gives $2,000 plus $600, or $2,600, assuming enough tax to absorb it.

The 2025 QMID requirement

For specified property placed in service in 2025, no §25C credit is allowed unless the item came from a qualified manufacturer and the return reports its identifier. The 2025 Form 5695 instructions ask for the four-character alphanumeric qualified manufacturer identification number (QMID) for each item, including exterior doors, windows and skylights. The IRS says insulation and air sealing materials are the only qualifying property that does not need it. FS-2025-05 (Q6) adds that, because of the early termination, manufacturers no longer have to file periodic reports, but they still must register as qualified manufacturers. Missing QMIDs are the most likely reason a 2025 claim needs follow-up, so collect them from invoices or manufacturers before the return goes out.

Nonrefundable, and only §25D carries forward

The IRS says the §25C credit is nonrefundable and “you can’t apply any excess credit to future tax years.” Any amount above the 2025 tax limit is simply lost. §25D is different: §25D(c) carries the unused amount to the succeeding year, and 2025 Form 5695 line 16 is the “Credit carryforward to 2026.” The draft 2026 Form 5695 (marked draft, not for filing) is now titled “Carryforward of Residential Energy Credit.” It has just four lines: the carryforward from 2025 line 16, the tax-liability limit, the credit to Schedule 3 line 5a, and any carryforward to 2027. Its draft instructions say only a carryforward can be claimed. Make sure the 2025 line 16 figure lands on the 2026 return.

Rebates, business use and basis

Per the IRS, public utility subsidies and seller- or manufacturer-linked rebates reduce qualified costs, while many state incentives labeled rebates are not purchase-price adjustments and may be income instead. If business use of the home is more than 20%, only the nonbusiness share of costs counts, which matters for clients who also take a home office deduction under §280A. The Form 5695 instructions also require reducing the home’s cost basis by any credit allowed.

Deadlines after October 15

The IRS (IR-2026-52) gave extension filers until October 15, 2026 to file 2025 returns; that date passed yesterday (see our October 15 extension deadline checklist). Clients who still have not filed should file now with Form 5695, since penalties and interest can apply to any balance due. For returns already filed without the credit, IRS Topic 308 says Form 1040-X must be filed within 3 years after the original return was filed or 2 years after the tax was paid, whichever is later; returns filed before the due date are treated as filed on the due date. Our Form 1040-X amended return guide covers making that claim complete.

Checklist for CPA firms

• Confirm completion dates for every 2025 energy item, not payment dates.
• Collect QMIDs for each specified §25C item placed in service in 2025.
• Net rebates and subsidies before applying the 30% rate and caps.
• Review filed 2025 returns for missed Form 5695 claims and 1040-X candidates.
• Carry the §25D line 16 amount into 2026 projections and estimates.
• Tell clients planning 2026 work that no federal credit applies; SideMargin points to state and utility rebate programs instead.

Where Tax Brew fits

Reviewing invoices, QMIDs and carryforwards across a late-season book of returns is slow, detail-heavy work. Tax Brew provides bookkeeping, cleanup and tax prep support for US CPA firms, with the first 20 hours free for qualifying engagements, while your team keeps the review, advice and sign-off. See our services, or email info@taxbrewglobal.com.

Sources: 26 U.S.C. §25C and §25D (Cornell LII); IRS FS-2025-05 (Aug. 21, 2025); IRS Energy Efficient Home Improvement Credit and Residential Clean Energy Credit pages; 2025 Instructions for Form 5695 and draft 2026 Form 5695 and instructions; IR-2026-52; IRS Topic 308; Theo Marlow, SideMargin — Energy Efficient Home Improvement Credit: Ended in 2026 (Sept. 23, 2026). General information, not tax or legal advice.