Contractors Should Keep a Steady Hand Amid IRA Rebate Uncertainty

For the past two years, federal incentives under the Inflation Reduction Act (IRA) have driven interest in energy-efficient home upgrades, providing a boost to HVAC contractors. But the landscape has shifted. On Jan. 20, President Donald Trump signed an executive order halting the disbursement of IRA rebate funds for 90 days, citing a need for program review.

While the pause does not affect tax credits, it has created uncertainty around rebate funding. Contractors now find themselves in the position of managing customer expectations and making sense of what comes next.

A Look at IRA Incentives

The IRA established two major rebate programs and expanded the Section 25C tax credit to help homeowners invest in energy-efficient upgrades:

• HEEHRA / HEAR: A point-of-sale rebate program providing up to $8,000 for ENERGY STAR-certified heat pumps, $1,750 for heat pump water heaters, and $840 for electric stoves or cooktops. Rebates are targeted at low- to moderate-income (LMI) households, with households below 80% of area median income (AMI) receiving higher incentives than those between 80-150% of AMI.
• HOMES / HER: A $4.3 billion program offering rebates for whole-home energy-saving retrofits; the rebate amount depends on energy savings achieved, with larger incentives available for bigger energy reductions as well as for LMI households.
• 25C Tax Credit: The Energy Efficient Home Improvement Credit lets homeowners deduct 30% of qualifying upgrades from their taxes, with an annual limit of $1,200 for most measures and up to $2,000 for heat pumps and heat pump water heaters. Homeowners must have a federal tax liability to claim this credit.

The Executive Order’s Impact on Funding

In the final days of the Biden administration, the Department of Energy (DOE) awarded $8.2 billion in Home Energy Rebate funds to 49 states, the District of Columbia, and U.S. territories, with South Dakota opting out.

Trump’s executive order, dubbed “Unleashing American Energy,” puts those rebates on hold. The funds already allocated are held in the Automated Standard Application for Payments (ASAP) system, which allows states to request reimbursement for approved projects. However, the administration has not clarified whether new reimbursement requests will be honored, leaving states and contractors uncertain.

As of Jan. 17, 12 states and D.C. had begun rolling out their rebate programs, and the latest indications are that those programs are continuing. For states that had not yet received DOE approval to launch their programs, the pause could extend beyond 90 days as well as result in potential changes to program requirements.

25C Tax Credit Remains Intact, With New Requirements

Unlike the rebate programs, the 25C tax credit remains available since it is part of the federal tax code rather than discretionary DOE funding. However, contractors should be aware of two key changes taking effect this year.

1) Efficiency Standards for Qualifying Equipment

To be eligible for the 25C tax credit in 2025, equipment must meet new specifications set by the Consortium for Energy Efficiency (CEE). These are:

• Central Air Conditioners:

o   Split systems: SEER2 ≥ 17.0, EER2 ≥ 12.0

o   Packaged systems: SEER2 ≥ 16.0, EER2 ≥ 11.5

•       Air Source Heat Pumps (must meet either Path A or Path B):

o   Path A (Heating-Dominated Regions): SEER2 ≥ 16.0, EER2 ≥ 9.8, HSPF2 ≥ 8.5, COP at 5°F ≥ 1.75, Capacity Ratio ≥ 60% (5°F/47°F)

o   Path B (Cooling-Dominated Regions): SEER2 ≥ 16.0, EER2 ≥ 11.0, HSPF2 ≥ 8.0, COP at 5°F ≥ 1.75, Capacity Ratio ≥ 45% (5°F/47°F)

2) New Product Identification Number (PIN) Requirement

Starting in 2025, homeowners will need to include a Product Identification Number (PIN) when claiming the 25C tax credit. The Air-Conditioning, Heating, and Refrigeration Institute (AHRI) has proposed using its product directory to generate these numbers, but final Treasury Department guidance is still pending.

For systems installed in 2025, the IRS has stated that taxpayers may use a Qualified Manufacturer (QM) Code instead of a full PIN. Contractors should guide homeowners to keep records of their installations, including model numbers and other details to ensure that they can claim the credit come tax season.

Expanding Savings with Local Incentives and Energy Savings

While the IRA rebates programs face uncertainty, state and utility-driven incentives remain active. These rebates can significantly lower the upfront cost of high-efficiency equipment and can be stacked with the 25C tax credit.

For contractors, clearly communicating these local programs is a great way to build trust with homeowners. Customers who see the financial benefits of efficiency upgrades, both for upfront savings as well as ongoing utility savings, are more likely to move forward with higher-end projects — regardless of federal policy. When contractors can break down the numbers, explain the options, and maximize available incentives and savings, it positions them to be not just service providers, but trusted advisors.

What Contractors Can Do Now

Even with federal rebates in limbo, contractors can take clear steps to keep business steady:

• Stay Informed: Monitor updates from the DOE, IRS, and state energy offices. Industry groups like HARDI and ACCA regularly provide analysis on policy changes.
• Clarify the 25C Tax Credit: Many homeowners don’t realize this credit remains available. Make sure they understand efficiency requirements, the necessity of a federal tax liability, and the upcoming PIN requirement.
• Highlight Local Incentives: Utility, state, and local rebates can provide immediate cost savings to consumers. They also stack with the 25C tax credit. Help customers navigate these programs proactively, and establish yourself as a trusted advisor.
• Manage Expectations: If customers were counting on IRA rebates, explain the situation clearly. Focus on the long-term benefits of high-efficiency systems, including lower energy bills and better home comfort.

Federal policies will continue to evolve, but homeowners still want lower energy costs and reliable HVAC systems. The incentives landscape may be uncertain, but contractors who stay informed, educate customers and emphasize available savings will continue to succeed, even in unpredictable times.