The federal tax credit for home improvement most homeowners remember no longer exists. Section 25C (energy efficient home improvement credit) and Section 25D (residential clean energy credit) both expired December 31, 2025, under Pub. L. 119-21. No federal tax credit covers windows, insulation, heat pumps, or solar panels installed in 2026.
That does not mean the tax code ignores home improvements entirely. Four strategies still deliver real tax benefits, and two federal rebate programs offer upfront discounts that exceed what the old credits ever provided.
What Expired and Why It Matters
Congress accelerated the sunset of both residential energy credits through the One Big Beautiful Bill, signed July 4, 2025. The original Inflation Reduction Act timeline extended these credits through 2032. The new law cut that short by seven years.
| Credit | What It Covered | Maximum Annual Benefit | Final Eligible Date |
|---|---|---|---|
| Section 25C | Windows, doors, insulation, HVAC, water heaters, energy audits | $3,200/year ($600 windows, $2,000 heat pumps, $1,200 other) | December 31, 2025 |
| Section 25D | Solar panels, geothermal, wind, battery storage | 30% of total cost (no annual cap) | December 31, 2025 |
Still filing 2025 taxes? You can claim both credits for improvements installed by December 31, 2025. Use IRS Form 5695 , Parts I (25D) and II (25C). The filing deadline is April 15, 2026, or October 15, 2026 with an extension. If you installed energy efficient windows in 2025, that sibling guide walks through the Form 5695 process step by step.
What Replaced Tax Credits: HEAR and HOMES Rebates
The Inflation Reduction Act created two rebate programs that survive the credit expiration. These aren’t tax credits at all. They reduce your purchase price at the point of sale.
HEAR (Home Electrification and Appliance Rebates) covers specific equipment upgrades with a combined cap of $14,000 per household: up to $8,000 for heat pumps, $4,000 for panel upgrades, $2,500 for wiring, $1,750 for heat pump water heaters, $1,600 for insulation, and $840 each for electric dryers and stoves.
HOMES (Home Owner Managing Energy Savings) rewards whole-house efficiency projects. Achieve 20%+ modeled energy savings and receive $2,000 to $8,000, with doubled amounts for low-income households.
The catch: HEAR requires household income below 150% of area median income. Households at 80-150% AMI get 50% of costs; those below 80% AMI get up to 100%. HOMES has no income requirement for the base tier, but the larger amounts are reserved for low-income applicants.
About 23 states have launched these programs so far. Others are rolling out through 2026. Funding is finite and first-come, first-served. Search your state’s status at energy.gov/save to see whether your state’s program is live. Check our full ENERGY STAR rebates guide for state-by-state details and stacking rules.
Capital Improvements: The Tax Benefit You Collect When You Sell
Every major home improvement you pay for increases your cost basis, which reduces the taxable gain when you sell your home. This isn’t a deduction you take annually. It’s a running total that pays off at closing.
The IRS excludes up to $250,000 in gain for single filers ($500,000 for married filing jointly) on a primary residence sale. If your gain falls within that exclusion, basis adjustments won’t matter. But homeowners in appreciating markets who’ve owned their home 15+ years regularly exceed those thresholds, and every dollar of documented improvement shrinks the taxable portion.
For example: a married couple bought their home for $350,000, spent $80,000 on documented capital improvements over the years, and sold for $950,000. Their adjusted basis is $430,000, giving them a $520,000 gain — $20,000 above the $500,000 exclusion. Without those documented improvements, the taxable portion would have been $80,000 higher. The tax savings on that difference depend on their income bracket, but the basis documentation alone eliminated a meaningful capital gains bill.
What counts as a capital improvement (per IRS Publication 523):
- Additions: bedrooms, bathrooms, decks, garages, porches
- Exterior: new roof, new siding, storm windows, satellite dishes
- Systems: heating, central air, ductwork, security systems, sprinklers
- Plumbing: septic systems, water heaters, water softeners
- Interior: kitchen modernization, flooring , built-in appliances, fireplaces
- Landscaping: driveways, walkways, fences, retaining walls, pools
What does NOT count: painting, fixing leaks, patching cracks, routine maintenance, anything with a useful life under one year. However, if repairs are part of a larger remodel project, the IRS lets you capitalize the entire job.
One detail most homeowners miss: claiming a tax credit for an energy improvement (like 25C or 25D) requires subtracting that credit from your cost basis. A $15,000 solar installation with a $4,500 credit adds only $10,500 to your basis.
Keep receipts. The IRS doesn’t track your improvements. You need dated invoices showing the work performed and the amount paid. Digital copies work. A shoebox of crumpled receipts works too, as long as they’re legible.
Medical Home Modifications: A Deduction Most People Overlook
The IRS splits medical home modifications into two categories, and the split determines how much you can deduct. Modifications that don’t add to your home’s value — ramps, grab bars, widened doorways — are fully deductible as medical expenses. Modifications that do increase value are only partially deductible: cost minus the value increase. Install an elevator for $25,000 that adds $15,000 to your home’s value, and only $10,000 qualifies. This applies whether the medical need is yours, your spouse’s, or a dependent’s.
Five specific modifications are listed by the IRS as items that typically don’t increase home value and are therefore fully deductible:
- Entrance and exit ramps
- Widened doorways at entrances and exits
- Bathroom railings and grab bars
- Lowered kitchen cabinets and counters
- Porch lifts and stairway lifts
Two barriers limit this deduction’s reach. First, you must itemize (the 2025 standard deduction is $15,750 for single filers, $31,500 for married filing jointly). Second, only medical expenses exceeding 7.5% of your adjusted gross income qualify. A household earning $80,000 would need more than $6,000 in total medical expenses before any deduction kicks in.
Still, for homeowners aging in place or adapting a home for a family member with mobility limitations, the numbers add up fast. A full accessibility renovation (ramp, bathroom modifications, widened doorways) can easily run $15,000-$30,000. Combined with other medical expenses, this deduction offsets real dollars.
Home Office Deduction
Self-employed homeowners can deduct a portion of housing costs through the home office deduction. W-2 employees cannot claim this, regardless of how much they work from home. The Tax Cuts and Jobs Act suspended the employee home office deduction starting in 2018, and the One Big Beautiful Bill made that suspension permanent. You choose between two calculation methods:
Simplified method: $5 per square foot, up to 300 square feet. Maximum deduction: $1,500. No depreciation, no record-keeping headaches. Choose this if your office is small and your housing costs are modest.
Regular method (Form 8829): Calculate actual expenses (mortgage interest, property taxes, insurance, utilities, repairs, depreciation) and multiply by the percentage of your home used for business. A 200 sq ft office in a 2,000 sq ft home = 10% of qualifying expenses. This method often yields a larger deduction but requires meticulous records.
The exclusive-use test trips up many filers. Your office space cannot double as a guest bedroom or a playroom. The IRS audits this with surprising frequency, and “I close the door when guests visit” is not a defense.
Property Taxes: Which Improvements Trigger Reassessment
Certain improvements raise your home’s assessed value — and with it, your annual property tax bill. This cost is invisible in most renovation budgets.
Projects that trigger reassessment:
- Room additions and new square footage
- Finished basements and converted attics
- Accessory dwelling units (ADUs) and garage conversions
- Swimming pools, outdoor kitchens, and major hardscaping
Building permits are the primary signal. When you pull a permit, your county assessor is notified. Projects over roughly $5,000 that require permits are the most common reassessment triggers.
Projects that typically don’t trigger reassessment:
- Replacing a roof with a similar roof
- Updating HVAC with equivalent equipment
- Kitchen or bathroom remodels within the existing footprint
- Interior paint, flooring, and cosmetic updates
The rules vary dramatically by state. California (Proposition 13) only reassesses the value of new construction added to the existing assessment. Texas reassesses all properties annually regardless of permits. New York leaves reassessment cycles to local municipalities, which may reassess every year or once a decade.
Here’s something most renovation budget guides skip entirely: energy-efficient upgrades rarely trigger reassessment even when they’re expensive. Replacing a furnace with a heat pump, adding insulation, or upgrading windows doesn’t create new livable space. Assessors generally treat these as maintenance or system replacements. The property tax cost of a $12,000 heat pump installation is usually zero, while adding a $12,000 deck could add $100-$200 per year in property taxes depending on your local mill rate.
Putting It Together: A Decision Framework
| Your Situation | Tax Strategy | Where to Start |
|---|---|---|
| Installed energy upgrades in 2025 | Claim 25C/25D on Form 5695 | Windows credit guide |
| Income below 150% AMI, need equipment | HEAR/HOMES point-of-sale rebates | ENERGY STAR rebates guide |
| Planning to sell within 5 years | Track all capital improvements for basis | IRS Publication 523 |
| Aging in place or disability modifications | Medical expense deduction (Schedule A) | IRS Publication 502 |
| Self-employed, work from home | Home office deduction (Form 8829 or simplified) | IRS Publication 587 |
| Worried about property tax increases | Understand your state’s reassessment rules | County assessor’s office |
A home energy audit helps with more than just energy savings. The audit report documents your home’s current condition, which establishes a baseline for both rebate eligibility (the HOMES program requires modeled savings data) and capital improvement records.
No single program replaces the simplicity of the old 25C credit. But the combination of rebates, basis adjustments, medical deductions, and home office deductions can deliver more total savings for homeowners who know where to look.