While the 25C homeowner efficiency improvement credit was first introduced in the Energy Policy Act of 2005, its expansion in 2023 following the passage of the Inflation Reduction Act has provided significant benefits to homeowners, including a tax credit of up to $3,200 per year for items like heat pumps, home energy audits, and air sealing and insulation.
The Expansion and Repeal
- Since its introduction in 2005, the 25C credit has undergone several changes, with the most significant expansion occurring in 2023.
- The expansion provided a tax credit of up to $3,200 per year for qualified improvements, including heat pumps, home energy audits, and air sealing and insulation.
- The proposal to repeal the tax credit at the end of 2025 will run through 2032.
- More than 2.3 million American households took advantage of the 25C homeowner efficiency improvement credit in 2023, with an average credit of nearly $900.
“ACCA’s contractor members have indicated their strong support for the 25C Energy-Efficient Home Improvement Credit,” said Sean Robertson, ACCA’s VP of Membership, Advocacy, and Events. “Several comments at our recent Town Hall encouraged ACCA to ‘focus on the tax incentives’ which are simple, fuel-neutral, and available nationwide versus IRA rebates that were seen as bureaucratic, confusing, and overly prescriptive.”
The Impact on Residential Clean Energy Credit (25D)
- The Residential Clean Energy Credit (25D) is a federal incentive to encourage homeowners to invest in renewable energy systems, including geothermal.
- The credit is equal to 30% of the total cost (including labor and installation) for eligible systems installed between 2022 and 2032.
- Unlike some other tax credits, the 25D credit has no annual or lifetime dollar limit.
- “Tax credits for geothermal heating and cooling systems have historically enjoyed strong bipartisan support,” said Ryan Dougherty, executive director at Geothermal Exchange Organization (GEO). “It is unfortunate that, due to the highly partisan nature of Washington, the House Ways and Means committee inadvertently threw the baby out with the bathwater.”
“We cannot let that happen again, and GeoExchange will be working around the clock to see residential credits restored in the final package,” Dougherty said. “It is important that Congress recognizes the relatively low cost of geothermal credits is far outweighed by the return on that investment. Geothermal systems lower consumer energy expenses, foster domestic manufacturing and workforce, and strengthen our nation’s electric grid. If we are serious about energy dominance, Congress must support the geothermal industry.”
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Consequence Effect Reduced installations of geothermal systems Job losses and a slowdown in the industry’s momentum toward broader clean energy adoption Increased upfront cost of geothermal systems Reduced competitiveness, leading to reduced installations and job losses Instability and market disruption for U.S. manufacturers Undermining the confidence that federal incentives had helped establish “Without this tax credit, the upfront cost of geothermal systems would become less competitive, likely resulting in reduced installations, job losses, and a slowdown in the industry’s momentum toward broader clean energy adoption,” said Joe Parsons, senior marketing sustainability manager of Climate Control Group.
U.S. Green Building Council’s Stance
“A vote to repeal these tax incentives is a vote to raise energy costs for millions of American households and businesses while discouraging billions of dollars of investment in the construction and real estate sectors, all at a time when we are seeing clear signs of a slowing economy and pinched pocketbooks,” said Elizabeth Beardsley, senior policy counsel at the U.S. Green Building Council.
“Businesses need certainty to invest and grow,” Beardsley said. “This proposal instead pulls the rug out from thousands of homebuilders, real estate companies, and others who have planned around using these tax incentives to make investments. If these drastic changes are enacted, projects will be canceled. Investment will slow. And the people who will lose out the most are workers in the building trades — the construction workers, electricians, heating and air conditioning contractors, and others in every state, across the country.”
Support from Republicans
“This process is far from complete, and the Senate will still get to have its say,” said Sean Robertson, ACCA’s VP of Membership, Advocacy, and Events. “We were encouraged by early assurances that Congressional leaders would use ‘a scalpel, not a sledgehammer,’ in addressing energy efficiency tax incentives. Unfortunately, the House tax bill looks much more like the latter. Even if we lose 25C in the budget reconciliation process, we will keep up the fight in annual tax extender packages, as we did for the decade prior to the IRA.
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