The Inflation Reduction Act (IRA) extended and expanded federal tax credits for home energy improvements through 2032. If you're replacing a furnace, heat pump, or air conditioner in 2026, you may be able to claim the 25C Energy Efficient Home Improvement Credit and reduce your federal tax bill significantly.
Here's what Minnesota homeowners need to know — including what qualifies, how much you can save, and how to claim it.
What Is the 25C Tax Credit?
The 25C credit (named for the IRS code section) allows homeowners to claim 30% of the cost of qualifying energy-efficient home improvements, up to certain annual limits. This is a tax credit, not a deduction — meaning it directly reduces the taxes you owe, dollar for dollar. The credit covers equipment costs and installation (labor) costs.
Qualifying HVAC Equipment in 2026
| Equipment | Minimum Efficiency Requirement | Max Annual Credit |
|---|---|---|
| Gas Furnace | AFUE 97%+ (if also claiming other upgrades) | $600 |
| Air Conditioner | SEER2 16+ (split), SEER2 15.2+ (package) | $600 |
| Heat Pump (air source) | HSPF2 7.8+, EER2 10+ | $2,000 |
| Heat Pump Water Heater | UEF 2.0+ | $2,000 |
| Biomass/Wood Furnace | 75%+ thermal efficiency | $2,000 |
Important: Gas furnaces are eligible only if purchased alongside another qualifying improvement in the same tax year. Standalone gas furnace replacement may have limited credit availability. Always confirm current IRS guidance or consult a tax professional — tax rules can change.
Annual Credit Limits
The 25C credit has an overall annual cap of $3,200, broken into sub-limits:
- Up to $1,200 total for insulation, windows, doors, and HVAC (furnaces, ACs, etc.)
- Up to $2,000 for heat pumps and biomass heaters (separate from the $1,200 cap)
- Up to $150 for a home energy audit
This means you could potentially claim up to $3,200 in a single year if you install both a heat pump ($2,000) and make other efficiency improvements ($1,200).
Does Goodman Equipment Qualify?
Several Goodman models meet the efficiency thresholds for the 25C credit. Goodman's GMVC98 (98% AFUE) and GMVC96 (96% AFUE) gas furnaces are among the highest-efficiency options available. For central AC, Goodman's GSXC18 and GSX20 series may qualify depending on configuration. Always check the ENERGY STAR certified products list at energystar.gov for confirmed qualifying models.
Minnesota Utility Rebates: Stack Savings
Federal tax credits can be combined with Minnesota utility rebates for even greater savings:
| Utility | Rebate Program | Typical Amount |
|---|---|---|
| Xcel Energy | Natural Gas Efficiency Rebates | $75–$350 for 95%+ AFUE furnace |
| CenterPoint Energy | Home Energy Efficiency Rebates | $50–$300 for qualifying furnace |
| Minnesota Energy Resources | Equipment Rebates | Varies by model |
| MCEA / Efficiency programs | Vary by local utility | Check local provider |
Stacking a federal 25C credit with utility rebates can reduce your net equipment and installation cost by several hundred to over a thousand dollars. See our full guide on Minnesota furnace installation costs in 2026.
How to Claim the Credit
To claim the 25C credit: purchase and install qualifying equipment in the tax year; keep your receipt showing purchase price; keep the manufacturer's certification statement; file IRS Form 5695 with your federal tax return. You do not need to itemize deductions — the 25C credit can be claimed with the standard deduction. A tax professional can help ensure you capture the full credit.
Is a Heat Pump Worth It for Minnesota?
Cold-climate heat pumps now operate efficiently down to -15°F, making them viable in Minnesota. However, most Minnesota homeowners still pair a heat pump with a gas furnace backup (dual-fuel system) for the coldest days. See our full guide on heat pump vs. furnace in Minnesota.
Shop Factory-Direct and Save More
Tax credits and rebates are most impactful when your equipment cost is already optimized. At Furnace Direct, we sell Goodman furnaces and AC units factory-direct — no contractor markup. Browse our furnace collection and AC collection with same-day Minnesota delivery.
Note: Tax credit rules can change. Always verify current eligibility with the IRS or a qualified tax professional before filing.
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