Heating & Cooling
The Federal HVAC Tax Credit Expired. Here Is What That Means for New Jersey.
Rich Jordan · August 31, 2026 · 7 min read
Heating & Cooling
Rich Jordan · August 31, 2026 · 7 min read
This is the last post in our series on 0% utility financing for HVAC in New Jersey, and it is the one I most wanted to write, because there is a lot of stale information out there and some of it is going to cost people money.
The Section 25C Energy Efficient Home Improvement Credit expired on 31 December 2025, terminated by the One Big Beautiful Bill Act.
For equipment placed in service in 2026, it is gone. Not reduced. Not harder to claim. Gone.
| Equipment | Through 31 Dec 2025 | 2026 onward |
|---|---|---|
| Air source heat pump | 30% of cost, up to $2,000 | $0 |
| Heat pump water heater | Up to $2,000, shared cap | $0 |
| Gas furnace or boiler | Up to $600 | $0 |
| Central air conditioning | Up to $600 | $0 |
| Insulation and air sealing | Up to $1,200 | $0 |
| Electrical panel upgrade | Up to $600 | $0 |
| Geothermal (Section 25D) | Percentage of system cost | Still available through 2032 |
An annual cap of $3,200 applied across categories. A New Jersey homeowner converting to a heat pump and upgrading a panel could reasonably have seen $2,600 back on their federal return.
I want to be fair about why this happens. For three years, "your net cost after the tax credit" was a completely normal way to present an HVAC proposal. It was on quote templates, in sales training, in brochures printed in bulk. Not everyone updated. Some of this is genuinely stale material rather than anyone trying to mislead you.
But it does not matter why. The effect on you is identical: a proposal that shows a $12,000 system netting to $10,000 after a credit that does not exist is a proposal that is $2,000 wrong, and you find out at tax time.
So ask the direct question: "Does this quote assume any federal tax credit?" If the answer is yes, ask which credit, and ask them to show you the current authority for it. A contractor who is on top of this will have a clear answer. One who does not know is telling you something useful about how carefully they track the rest of your project.
Not everything went away.
Section 25D still covers geothermal. Ground source heat pumps fall under a different provision that remains in effect through 2032. If you are considering geothermal, the federal credit is still there and it is a percentage of total system cost rather than a flat cap. Talk to your tax preparer about 25D specifically. This is the one meaningful federal survivor for home heating and cooling.
State and utility programs are unaffected. They are funded through New Jersey ratepayers and administered by the state Board of Public Utilities. Federal tax law changes did not touch them.
That second point is the whole reason this article exists.
Take a realistic case. A New Jersey homeowner replacing a 1997 gas furnace with a 96% AFUE condensing furnace, roughly a $9,000 project.
In 2025:
In 2026:
Six hundred dollars worse. Not catastrophic on a furnace.
On a heat pump conversion it is a different story. That project used to carry a $2,000 federal credit, and a full oil-to-heat-pump conversion could combine the heat pump credit with panel and insulation credits toward the $3,200 annual cap. Losing $2,000 to $3,200 on a $25,000 project is a real change in the economics.
Here is the part I would actually want you to take away.
When the federal credit existed, the utility programs were a nice addition to a stack. Now they are the stack. For most New Jersey homeowners they are the only meaningful financial support available for a heating or cooling replacement.
And they are considerably larger than the federal credit ever was.
And the financing is worth more than any of the rebates. On a $20,000 project over ten years, 0% instead of 9% dealer financing saves roughly $10,400 in interest. That single line dwarfs the $2,000 federal credit that went away.
So the honest summary is: you lost something real, and the thing that replaced it in importance was already bigger. A lot of homeowners were leaving the larger benefit on the table while carefully claiming the smaller one.
This is where the loss stings most, and it is also where New Jersey does the most to make up for it.
The Building Decarbonization incentives are aimed squarely at getting houses off oil and gas and onto heat pumps. PSE&G's program offers up to $10,000 for a full conversion, $12,000 for income-qualified households. The statewide Whole Home path adds rebates up to $7,500 based on modeled savings. Combined financing on a project spanning both can run well above the $25,000 single-program ceiling.
Against that, a $2,000 federal credit was never the deciding factor. If you were on the fence about a conversion and the credit expiring pushed you off it, I would look at the state numbers again before you settle. They are larger and they are still here.
I would also be honest with you about the other side of that decision, because incentives are not the only variable. A heat pump conversion changes your operating cost, and whether it changes it in your favor depends on your electric rate, your envelope, your ductwork and how your house behaves in February. It is a good answer for a lot of New Jersey homes and a poor answer for some. Anyone who tells you it is always the right call is selling equipment.
Reprice anything you were quoted in 2025. If your quote is more than a few months old, the tax assumptions in it are probably wrong.
Ask every contractor whether their number assumes a federal credit. Straight question, straight answer.
Find out which utility programs apply to you. Most New Jersey homeowners have two utilities and do not realize both may have something, for different equipment. The overview post walks through how to figure out which is which.
Ask about geothermal if it is plausible for your lot. It is the one place a federal credit still applies, through 2032.
Know the timing. Current New Jersey utility program terms generally run through 30 June 2027. In July 2026 the Board of Public Utilities approved a transition plan for the following year that reduces utility efficiency spending by about 28% and reorients incentives toward smart, grid-connected equipment. There will still be programs. They will likely be smaller and pointed differently.
I am not going to turn that into a countdown clock. If your system is running fine, run it. If it is twenty years old and you have been putting off the decision, the difference between deciding this year and deciding in 2028 is probably real money, and you should factor that in alongside everything else.
I am not a tax professional and this is not tax advice. Federal tax law is not my trade - heating and cooling is. What I have described here is public and verifiable, and I have linked the sources below, but your return is between you and whoever prepares it. Ask them, particularly about geothermal and 25D.
What I can tell you accurately is which utility programs apply to your address, what your equipment qualifies for, and what the monthly number looks like on your bill. We are a preferred or approved contractor for the NJNG, Elizabethtown Gas and JCP&L programs, and we file the paperwork as part of the job.
Tell us what you need - we’ll confirm your appointment and get your home back to comfortable, fast.
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