The Home Improvement Tax Credits Expired at the End of 2025: What That Means If You Are Planning Repairs in 2026

Two of the most popular federal tax credits for homeowners, the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit, expired on December 31, 2025. If you have already started a home improvement project in 2026 expecting to claim one of these credits on your return, you need to know they are gone. If you are still planning a project, you need to know before you sign a contract.

What the Law Changed and When

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, cut short two long-standing federal tax benefits for homeowners. Section 70505 of the One Big Beautiful Bill Act terminates the Energy Efficient Home Improvement Credit for property placed in service after December 31, 2025. The companion solar and clean energy benefit went the same way: Section 25D, the Residential Clean Energy Credit, will not be allowed for any expenditures made after December 31, 2025.

The early termination of these federal energy tax credits stems from the passage of the One Big Beautiful Bill Act, Public Law 119-21, which was signed into law on July 4, 2025. This legislation included provisions that specifically set the expiration date for both Section 25C and Section 25D as December 31, 2025. While these credits had varying planned lifespans under previous legislation, the OBBBA superseded those timelines, bringing an earlier end to these federal incentives for energy-efficient home improvements.

The IRS confirmed both cutoffs in Fact Sheet 2025-05. The Internal Revenue Service issued frequently asked questions in Fact Sheet 2025-05 relating to the modification of sections 25C and 25D under the One Big Beautiful Bill Act. These FAQs provide guidance on several energy credits and deductions that are expiring under the OBBBA and their termination dates.

What These Credits Covered (and What They Were Worth)

If you heard about these credits in recent years, here is a quick recap of what they were.

The Energy Efficient Home Improvement Credit allowed individuals to claim a non-refundable tax credit for 30% of the costs for qualified energy-efficient improvements to their homes, up to a maximum of $3,200 depending on the improvement. The Energy Efficient Home Improvement Credit expired after December 31, 2025. Improvements such as insulation, windows, doors, HVAC systems, and home energy audits are no longer eligible unless placed in service by that date.

The solar and clean energy credit was even more generous. It allowed homeowners to claim a 30% tax credit for certain clean energy systems, such as solar panels, small wind turbines, geothermal systems and battery storage technology. The Inflation Reduction Act had originally set this credit to run at 30% through 2032, but the OBBBA repealed it early.

The Key Rule: Placed in Service, Not Purchased or Contracted

One of the most important things to understand is how the IRS decides whether a project qualifies. It is not the date you signed a contract or paid a deposit. The IRS uses the “placed in service” date, meaning the date the equipment was fully installed and operational. If your project was completed and placed in service on or after January 1, 2026, it does not qualify for the federal 25C or 25D credits, regardless of when you signed the contract or purchased the equipment.

The Section 25D rules on this point are especially strict. Section 25D(e)(8)(A) provides that an expenditure with respect to an item is treated as made when the original installation of the item is completed. If installation is completed after December 31, 2025, the expenditure will be treated as made after December 31, 2025, which will prevent the taxpayer from claiming the Section 25D credit.

This matters because some homeowners paid in full before year-end but the crew did not finish installing until January or later. That timing alone is enough to disqualify the credit.

What Happens If You Claim an Expired Credit on Your Return

This is where things can get costly. If you file your 2026 tax return and claim a Section 25C or 25D credit for work done in 2026, the IRS will likely catch it. In 2026, with expanded data matching and automated cross-checking, small errors are identified faster than ever. If a credit is claimed incorrectly, the IRS may disallow it and send a notice adjusting your refund or balance due. Interest or penalties may apply depending on the circumstances.

If you already owe the IRS money or have unfiled returns, an additional disallowed credit creates more debt on top of what you already carry. Delinquent IRS debt is subject to collection for 10 years and accrues penalties and interest. The IRS has broad enforcement powers, placing bank accounts, wages, Social Security benefits, pension payments, and other property at risk. A mistaken credit claim is a quick way to make a manageable situation more complicated.

One Exception: Unused Credits You Earned Before 2026

There is some good news if you completed a qualifying project in 2025. Although the new expiration rules determine which expenditures qualify for the credit, the OBBBA did not change the Section 25D credit’s carryforward rules. Therefore, under current law and regulations, taxpayers who made qualifying expenditures before the end of 2025 may carry forward any unused credit amounts to future tax years.

In plain terms: if you had solar panels or a geothermal system installed and fully operational by December 31, 2025, and you could not use all of the credit against your 2025 tax bill because the credit exceeded your tax liability, you can carry the leftover forward. There is no expiration on the carryforward, but the credit itself ended on December 31, 2025, so future-year carryforwards will be the only Section 25D activity on future returns.

To protect that carryforward, keep your documentation. For tax years when the credit was available, taxpayers claimed the Energy Efficient Home Improvement Credit by filing IRS Form 5695, Residential Energy Credits, with their federal income tax return. Hold onto your 2025 Form 5695, all invoices, and any manufacturer certifications. You will need them to support the carryforward in any year you use it.

What Alternatives Exist for 2026 Projects

The federal credits are gone, but some paths to savings remain. While Section 25C and 25D have expired, the landscape of energy efficiency incentives is dynamic. As of 2026, there are no direct federal tax credits for homeowners that have explicitly replaced the expired Section 25C or 25D credits for the 2026 tax year. That means you should look elsewhere.

Many states, local governments, and utility companies offer their own rebates, grants, or tax incentives for energy-efficient home improvements. These programs vary widely by location and may still be available. The DSIRE database (dsireusa.org) is a free, searchable tool maintained to track these programs by state. Contact your local electric and gas utility companies as well, as they often offer specific rebates for energy-efficient equipment like heat pumps and insulation in their service area.

Two major federal rebate programs survived the OBBBA and are now the backbone of residential energy savings in 2026: the HOMES and HEAR programs, backed by a combined $8.8 billion federal budget. Unlike the expired tax credits, these are not deductions on your annual return; they are direct rebates that reduce what you pay upfront. These programs are administered at the state level, so eligibility and availability differ depending on where you live.

If You Are Behind on Taxes and This Changes Your Plans

Many homeowners budgeted for a renovation partly because they expected a federal credit to offset the cost. If that credit is no longer available and you are already carrying IRS debt, now is the time to look at your full tax picture carefully.

Homeowners in that situation may have options depending on their circumstances. Programs such as installment agreements, currently not collectible status, or an Offer in Compromise may be available to taxpayers who qualify. If you cannot fully pay under an installment agreement, you may apply for an Offer in Compromise. An OIC is an agreement between a taxpayer and the IRS that resolves a taxpayer’s tax liability by payment of an agreed upon reduced amount. Whether any of these options fits your situation depends on your specific finances, and no outcome is guaranteed.

If you have unfiled returns, address those first. Before an Offer in Compromise can be considered, you must have filed all tax returns, have received a bill for at least one tax debt included on the offer, and made all required estimated tax payments for the current year. Filing is always the starting point, no matter what you owe.

Clear Start Tax works with individuals and businesses who are dealing with IRS and state tax debt. If the expiration of these credits has disrupted your financial plan or if you are already behind, a consultation can help you understand what relief options may be available in your circumstances.