The window is closing for Americans hoping to reduce their tax bills by making their homes more energy-efficient. With two federal incentive programs nearing expiration, thousands of homeowners are rushing to install solar panels, replace old HVAC systems, and upgrade insulation before the financial perks disappear.
Originally extended through 2032 under the Inflation Reduction Act, these credits were scaled back under the OBBA, a legislative package signed into law earlier this year. As a result, the current federal clean energy credits will officially end on December 31, 2025.
Residential and Clean Energy Credits: What’s Expiring
Two federal programs are affected by the upcoming expiration: the Energy Efficient Home Improvement Credit (EEHIC) and the Residential Clean Energy Credit (RCEC). Both aim to encourage households to reduce energy consumption and adopt low-emission technologies.
The EEHIC allows homeowners to deduct 30% of qualifying energy-saving upgrades, such as ENERGY STAR-certified windows, doors, insulation, heat pumps, and HVAC systems. According to The Economic Times, homeowners can claim up to $1,200 annually, with some specific upgrades—like heat pumps and water heaters—qualifying for up to $2,000 per year. These credits apply only to the primary residence, not to vacation homes or rental properties.
The RCEC focuses on renewable energy systems, providing a 30% deduction for items like solar panels, geothermal heat pumps, solar water heaters, battery storage systems, and small wind turbines. Importantly, there is no annual or lifetime cap for this credit. According to Click2Houston, the average RCEC claim reached approximately $5,000 in 2023, making it particularly appealing for large-scale projects.
Taxpayers must file IRS Form 5695 when submitting their federal returns to claim either credit. The IRS also requires supporting documentation, such as receipts, product certifications, and installation records. All eligible systems must be installed and operational by December 31, 2025.
Consumer Response and Industry Uncertainty
The approaching deadline has triggered a surge in consumer demand. In a CBS report, Jeff Wineshank, a homeowner racing to install solar panels before the end-of-year cutoff, noted: “With the federal tax credit, we’re expecting to save about $140 a month.” The immediate cost savings combined with long-term energy reductions have made these incentives especially attractive.
Mike Kirby, who operates a solar company near Baltimore, described the spike in inquiries as “unlike anything I’ve seen in the last 16 years,” adding that his business has entered “overdrive” as clients scramble to meet the deadline.
Still, the expiration raises concerns for the renewable energy sector. According to Kirby, “Without the incentive, I think it’s going to have a dramatic impact on the consumer’s choice.” Historically, when similar credits have lapsed, the market faced short-term declines before gradually rebounding, though the timeline for recovery remains uncertain.
Meanwhile, federal programs aren’t the only source of support. State and utility-level incentives, such as those listed in the Database of State Incentives for Renewables & Efficiency, can help fill the gap, especially for homeowners who miss the federal window.
These tax incentives have played a key role in expanding access to renewable energy and driving down emissions. Their expiration could affect affordability and adoption rates, just as momentum was building in favor of sustainable home upgrades.
