Energy Tax Incentives: Four Termination Rules to Check

For years, a homeowner replacing a furnace with a qualifying heat pump could count on a federal tax credit worth up to $2,000. A homeowner going solar could count on 30% of the cost back, no cap. As of 2026, both of those are gone, along with two incentives that matter more to builders and commercial contractors than homeowners. Here’s what changed and when.

Section 25C, Energy Efficient Home Improvement Credit: ended December 31, 2025. This was the credit behind a lot of NWA heat pump and insulation upgrades: up to $3,200 a year, with a $1,200 cap for insulation, doors, windows, and energy audits, and a separate $2,000 cap for qualifying heat pumps, heat pump water heaters, and biomass stoves. The IRS states plainly that the credit “will not be allowed for any property placed in service after December 31, 2025.” If your install was completed and placed in service in 2025, it’s still claimable on a 2025 return. Anything placed in service in 2026 is not.

Section 25D, Residential Clean Energy Credit: ended December 31, 2025. This was the 30%-of-cost credit for solar panels, solar water heating, geothermal heat pumps, and battery storage, with no annual or lifetime cap, and it originally wasn’t scheduled to phase out until 2033. The 2025 law moved that up by seven years. The IRS says it “will not be allowed for any expenditures made after December 31, 2025.” For this deadline, an expenditure on equipment is treated as made when its original installation is completed. Paying in 2025 does not preserve the credit for an installation completed in 2026. For construction or reconstruction, the rule follows the taxpayer’s first use of the completed structure.

Section 179D, commercial buildings deduction: ends for construction starting after June 30, 2026. This affected commercial mechanical, electrical, lighting, and envelope work. If a commercial job in Rogers, Springdale, or Bentonville broke ground on or before June 30, 2026, it may still qualify. Anything breaking ground after that date does not. “Begins construction” is a defined term with its own tests, so a contractor should confirm with a CPA which in-flight jobs qualify.

Section 45L, new energy efficient homes: ends for homes acquired after June 30, 2026. This one matters most to NWA homebuilders. The trigger is when the buyer acquires the home, not when it was built, so an ENERGY STAR or Zero Energy Ready home that closed on or before June 30, 2026 may still qualify, while one closing in July 2026 or later does not.

The IRS’s dated guidance explains each termination test. Its main 25C and 25D pages now state the 2025 end dates, although the 25D page still contains older phaseout wording farther down. For a project crossing year-end, use the dated guidance and its installation-completion explanation rather than assuming an early payment preserves the credit.

Practical takeaway: If you’re a homeowner getting quotes for HVAC, solar, or window work in 2026, ask directly whether the contractor’s price assumes a federal tax credit, and if so, which one and under what section, then verify it against the IRS’s OBBB FAQ page yourself. If you’re a contractor, update your standard project proposals now rather than after a customer catches the error.

Local relevance: This affects nearly every NWA homeowner and contractor who has planned around a federal energy credit in the past several years, and it changes the payback math on solar and heat pump upgrades across the region regardless of any state or utility rebate that might still apply separately.

Check the IRS’s current guidance and your project’s dates before relying on a credit or deduction. State and utility incentives have separate eligibility rules.

Correction, October 10, 2026: Clarified that Section 179D is a deduction, and that the Section 25D deadline follows installation completion (or first use of a completed structure), rather than payment alone. The installation, construction and acquisition tests use different dates. Updated the description of the IRS landing pages.