The clock is officially ticking.

The federal Energy Efficient Home Improvement Credit (Section 25C) – the one that gives you 30% off a qualifying heat pump installation, up to $2,000 per year – is now scheduled to end for projects completed after December 31, 2025.

For Bay Area homeowners who have been “thinking about a heat pump someday,” someday now has a deadline. If your new system isn’t installed and running by the end of 2025, you could lose this federal tax credit entirely.

At Galaxy Heating & Air Conditioning, we’re already seeing more people rushing to upgrade before the window closes. This post breaks down what’s changing, how much you can still save, and why waiting until late 2025 is risky if you want to lock in your federal incentives.

What Is the Federal Heat Pump Tax Credit?

The Energy Efficient Home Improvement Credit (25C) is a federal tax credit that helps homeowners pay for energy-efficient upgrades like air-source heat pumps, heat pump water heaters, and other improvements.

For heat pumps, here’s how it works in 2025:
• Credit amount: 30% of the total project cost (equipment + installation)
• Annual cap for heat pumps: Up to $2,000 per year
• Overall annual cap for all 25C upgrades: Up to $3,200 per year (heat pump portion + up to $1,200 for things like insulation, doors, windows, panel upgrades, etc.)
• Type of improvement: Must be installed in an existing home, not new construction
• Residency rule for heat pumps: The home has to be used as a residence by the taxpayer (primary or second home is OK), but landlords who never live there cannot claim this credit.
• How you claim it: File IRS Form 5695 with your federal tax return.

This is a tax credit, not just a deduction – it directly reduces the tax you owe, dollar-for-dollar, up to the allowed limit.

The Big Change: Credit Ends for Installations After December 31, 2025

Originally, these credits were supposed to run through 2032. Mid-2025 guidance and follow-up legislation pulled that end date forward for the 25C home-improvement credit: no credit is allowed for equipment placed in service after December 31, 2025.

As of now:
• The IRS and ENERGY STAR both state that qualifying improvements – including air-source heat pumps – must be placed in service between January 1, 2023 and December 31, 2025.
• After December 31, 2025, no new heat pump installations will qualify for this 25C incentive unless Congress changes the law again.

Important:
“Placed in service” means the heat pump is installed, connected, inspected as required, and ready to heat/cool your home – not just ordered, paid for, or sitting in a box.

So if you sign a contract in November 2025 but permitting delays push the installation into January 2026, you’ve likely missed the federal credit.

How Much Can a Bay Area Homeowner Still Save?

Let’s say you’re installing a high-efficiency ducted heat pump system in Contra Costa, Alameda, or San Francisco County.

Example:
• Total installed cost: $18,000
• 30% of project cost: $5,400
• 25C annual cap for heat pumps: $2,000

In this case, you’d likely receive the full $2,000 federal tax credit (subject to your tax liability for the year).

If, in the same year, you also:
• Add insulation or air sealing, and/or
• Upgrade your electrical panel to support the new heat pump

You could potentially claim up to another $1,200 for those improvements, for a maximum of $3,200 in total 25C credits in one tax year.

And that’s before stacking:
• Local Bay Area & California rebates (where still available)
• Utility incentives
• Financing promotions from manufacturers or lenders

Many of these programs are first-come, first-served and have already changed or paused funding in 2024–2025, so the combination of federal + local money is truly a limited-time opportunity.

Why Heat Pumps Make So Much Sense in the Bay Area

Even without the federal tax credit, heat pumps are rapidly becoming the default choice in the Bay Area. With the credit, the economics get even better.

1. Perfect match for our mild climate
The Bay Area’s winters are cool, not arctic. Modern air-source heat pumps are most efficient in precisely this type of climate, often delivering 2–3 times more heat per unit of electricity compared to electric resistance heat.

2. One system for heating and cooling
A heat pump is both your high-efficiency heater and central AC. Upgrading from an aging furnace and separate AC to a modern heat pump can:
• Cut your heating energy use significantly
• Provide quiet, even cooling in the summer
• Improve comfort, humidity control, and indoor air quality

3. Lower emissions & future-proofing
California is steadily tightening rules around gas appliances and building emissions. Heat pumps:
• Reduce your home’s carbon footprint
• Position you for future gas furnace and water heater phase-outs
• Pair perfectly with rooftop solar and time-of-use electric rates

4. Long-term savings on utility bills
Multiple analyses show that in mild climates, heat pumps can cut annual heating and cooling costs compared to older gas furnaces and standard AC – especially when combined with smart thermostats and basic weatherization.

Why You Shouldn’t Wait Until Late 2025

On paper, December 31, 2025 sounds far away. In the real world of Bay Area HVAC projects, it’s not.

1. Permitting & design take time
A proper heat pump installation often includes:
• Load calculations
• Ductwork review or redesign
• Electrical evaluation (and sometimes panel upgrades)
• City permits and inspections
That process alone can stretch over several weeks or months.

2. Contractor schedules fill up fast
As more homeowners realize the credit is ending, reputable contractors’ calendars are filling with:
• Peak-season emergency replacements
• Planned system upgrades
• Multi-trade projects (electrical + HVAC + insulation)
If you wait until summer or fall 2025 to start, you may find that the earliest available installation dates are uncomfortably close to – or past – the federal deadline.

3. Equipment supply can tighten
We’ve already seen how quickly specific high-efficiency models can go on backorder when incentives spike demand. As manufacturers adjust to the expiring credit and new refrigerant rules, certain configurations may be:
• Harder to source
• More expensive
• Subject to longer lead times
Starting now gives you full access to model options, better pricing, and more scheduling flexibility.

What You Need to Claim the Credit

If you install a qualifying heat pump with Galaxy before the deadline, here’s what you’ll generally need for your tax preparer:

1. Detailed invoice
o Clearly showing equipment, labor, and the installation date.

2. Model numbers and AHRI/CEE ratings
o We’ll help you choose equipment that meets the required efficiency tiers and provide documentation.

3. Manufacturer’s certification or eligibility statement (if available)
o IRS guidance allows you to rely on a manufacturer’s written certification that the product qualifies for 25C; many list eligible models on their websites.

4. A QM Code (QMID) or PIN for 2025 installs
o For equipment placed in service in 2025, the IRS lets homeowners report a 4-character Qualified Manufacturer Code (QM Code or QMID) instead of the longer 17-character Product Identification Number (PIN).
o Starting in 2026, a full 17-character PIN would normally be required – but the 25C credit itself is currently scheduled to end after December 31, 2025, so for heat pumps the practical focus is on this one year and the 4-digit QM Code.

5. Completed IRS Form 5695
o This is filed with your federal tax return for the year the system was installed, and it now includes fields for the QM Code or PIN.

Important disclaimer: Galaxy Heating & Air Conditioning is not a tax advisor. Always confirm your eligibility and specific tax situation with a qualified tax professional.

Quick Reference: 2025 QM Codes for Popular Brands We Install

Because the IRS now requires a manufacturer code on Form 5695 for 2025 installations, homeowners are suddenly being asked for a piece of data that isn’t always obvious. To make life easier, here are QM Codes (QMIDs) for some major manufacturers whose products we regularly install in Bay Area homes:
Always verify the code printed on your equipment label or in the manufacturer’s documentation. Codes can change, and not every product from a manufacturer qualifies for the credit.

• Mitsubishi Electric / Mitsubishi Electric Trane HVAC
o QM Code: E8X7
o Used for many Mitsubishi cold-climate and standard heat pump systems that meet 25C efficiency rules.

• Daikin Comfort Technologies (Daikin, Goodman, Amana branded equipment)
o QM Code: I7Q6
o This single manufacturer code covers multiple brands under the Daikin umbrella; eligibility still depends on the specific model.

• Carrier / Bryant
o QM Code: N8H2

• Bosch Thermotechnology (Bosch heating & cooling)
o QM Code: K3M2

• Rheem / Ruud / Richmond (HVAC & heat pump water heaters)
o QM Code: K3A8

• A. O. Smith / Reliance water heaters
o QM Code: A5X5

For other manufacturers we work with – including Lennox, Trane, American Standard, Gree and additional specialty brands – the companies are registered as Qualified Manufacturers with the IRS, but some do not make their QM Codes easily visible to the public yet or only share them through dealer portals.

In those cases, homeowners should:
1. Look on the equipment label (usually on the outdoor unit nameplate for heat pumps).
2. Check the manufacturer’s tax credit page for a “QM Code” or “Qualified Manufacturer Code.”
3. Ask your Galaxy comfort advisor or installer – we can help you track down the correct code and note it on your paperwork at the time of installation.

For split-system heat pumps, remember that only the outdoor unit needs a QM Code/PIN for the federal credit.

Why Bay Area Homeowners Choose Galaxy for Heat Pumps

If you’re going to beat the deadline, you need a contractor who:
• Understands federal and local incentive rules
• Knows which equipment actually qualifies
• Has experience designing all-electric and dual-fuel systems for Bay Area homes
• Can move your project from consultation to installation efficiently

Galaxy Heating & Air Conditioning:
• Specializes in high-efficiency heat pumps and ductless systems for Contra Costa, Alameda, and San Francisco counties
• Designs systems for real-world comfort – not just brochure efficiency
• Coordinates with homeowners on panel upgrades, permits, QM Codes/PINs, and rebate paperwork
• Stands behind our work with strong warranties and local support

We don’t just “swap boxes.” We look at your whole home – ducts, electrical, insulation, usage patterns – and design a system that makes sense for your comfort, budget, and long-term plans.

Your Next Steps: Beat the 2025 Deadline

If you’re even thinking about replacing your:
• Old gas furnace
• Aging AC
• Inefficient electric resistance heat

…this is the moment to seriously consider a heat pump upgrade.

Here’s how to get started with Galaxy:
1. Schedule a heat pump consultation
o We’ll evaluate your home, current system, and goals.
2. Review your options
o Ducted, ductless, or hybrid/dual-fuel setups
o Financing and payment plans
o Potential federal and local incentives
3. Lock in your project timeline
o So your system is installed and operating well before December 31, 2025 – and your QM Code is documented right on your invoice for easy tax filing.

📞 Call Galaxy Heating & Air Conditioning at (925) 578-3293
or
🌐 Request a consultation through our website to start your heat pump project.

The federal heat pump tax credit won’t be around forever. If you want lower bills, better comfort, and up to $2,000 back on your taxes, now is the time to act – and Galaxy is here to help you make it happen, right down to the QM Code line on Form 5695.