How to Claim the Federal Mini Split Tax Credit

Homeowners looking to improve their property’s energy efficiency may consider installing a ductless mini-split heat pump system. These systems provide both heating and cooling, offering a flexible solution for managing a home’s climate. To encourage the adoption of high-efficiency home upgrades, the Energy Efficient Home Improvement Credit, governed by Section 25C of the Internal Revenue Code, is available. This incentive is for individuals who invest in qualifying energy-saving equipment and aims to lower the financial barrier for installing systems that reduce energy consumption.

Taxpayer and Property Eligibility

To qualify for the credit, a taxpayer must meet specific ownership and residency requirements. The individual claiming the credit must own the property where the mini-split system is installed. The home must also serve as the taxpayer’s principal residence and be located in the United States. This credit is intended for improvements to existing homes; it is not available for equipment installed in newly constructed homes or for properties that are rented out to others. The focus is on retrofitting current housing stock rather than incentivizing new construction.

Qualifying Mini Split System Requirements

For a mini-split heat pump to be eligible for the tax credit, it must meet high energy efficiency standards. The equipment must satisfy the requirements for the highest efficiency tier established by the Consortium for Energy Efficiency (CEE). These standards are updated periodically, and the system must meet the criteria in effect at the start of the year it is placed into service.

Homeowners should verify a system’s performance metrics to ensure it qualifies. Ratings to check include the Seasonal Energy Efficiency Ratio 2 (SEER2), Energy Efficiency Ratio 2 (EER2), and Heating Seasonal Performance Factor 2 (HSPF2). For 2025, split heat pump systems must meet specific thresholds, such as a SEER2 of at least 16.0. These ratings are found on the unit’s EnergyGuide label or in the product specifications.

To confirm a specific model’s eligibility, homeowners can look for the ENERGY STAR label, request a Manufacturer’s Certification Statement, or search the online directory from the Air-Conditioning, Heating, and Refrigeration Institute (AHRI). For equipment placed in service starting in 2025, homeowners must also have the product’s Qualified Identification Number, which is used to verify eligibility when filing.

Calculating the Credit Amount

A taxpayer can claim 30% of the amount paid for both the qualifying mini-split equipment and the associated installation labor. The costs must be incurred for an existing principal residence to be eligible for the calculation.

There is a specific annual limit on the credit amount for heat pumps. The maximum credit for a qualifying electric heat pump, which includes mini-split systems, is $2,000 per year. This means that even if 30% of the total cost exceeds $2,000, the taxpayer cannot claim more than that amount. This limit resets each year, so a homeowner could potentially claim the credit again for other qualifying improvements in subsequent years.

This is a nonrefundable tax credit. A nonrefundable credit can reduce a taxpayer’s federal income tax liability to zero, but no portion of the credit will be paid out as a refund if it exceeds the total tax owed. For example, if a taxpayer has a tax liability of $1,500 and calculates a $2,000 credit, the credit will reduce their tax bill to zero, but they will not receive the remaining $500 as a refund. The unused portion cannot be carried forward to a future tax year.

Required Documentation and Form Completion

Before filing for the credit, taxpayers must gather specific documents. Key items include itemized invoices and receipts that show the separate costs for the mini-split unit and the installation labor. You should also keep the Manufacturer’s Certification Statement, which confirms the equipment meets efficiency standards.

The credit is claimed on IRS Form 5695, Residential Energy Credits. When completing the form, you will enter the total costs for the qualifying equipment and installation. For systems placed in service on or after January 1, 2025, you must also provide the product’s Qualified Identification Number. The final credit amount from Form 5695 is then transferred to your main Form 1040 tax return.

How to Claim the Credit

After you have gathered all necessary receipts and completed Form 5695, the final step is to submit it with your annual tax return. The completed Form 5695 must be attached to your Form 1040, 1040-SR, or 1040-NR. The total credit amount calculated on Form 5695 will be entered on the appropriate line of your Form 1040, reducing your overall tax liability.

The submission process is straightforward when using tax preparation software. Most tax programs will prompt you for the relevant information, fill out Form 5695 for you, and attach it electronically to your return. If you are filing a paper return, you must physically include the printed Form 5695 with your mailing. It is advisable to keep copies of all related documents with your tax records for at least three years.