HVAC tax benefits and incentives (2026)
Federal, state and local tax breaks that apply to commercial and residential HVAC and refrigeration work, in plain English, with sources. Then talk to your CPA.
Straight talk: We’re mechanical contractors, not tax advisors. This page explains what the rules say as of October 2026 so you can have a better conversation with your CPA. It isn’t tax advice, and your CPA decides what applies to you.
Tax rules that affect HVAC work
| Incentive | What it does (as of October 2026) | Source |
|---|---|---|
| Section 179 expensing (federal) | Businesses can elect to expense qualifying property in the year it’s placed in service. For tax years beginning in 2025 the limit is $2,500,000, reduced dollar for dollar once qualifying purchases pass $4,000,000. HVAC improvements to nonresidential buildings placed in service after the building was first placed in service can be treated as section 179 property. | IRS Publication 946 |
| Bonus depreciation (federal) | Under the 2025 law (P.L. 119-21), qualified property acquired after January 19, 2025 is eligible for a permanent 100% first-year depreciation deduction. | IRS Notice 2026-11 |
| 179D energy efficient commercial buildings deduction (federal) | A per-square-foot deduction for energy-efficient HVAC, hot water, lighting and envelope work in commercial buildings. It does not apply to property whose construction begins after June 30, 2026, so only projects already started by that date can use it. | IRS FS-2025-05 · U.S. Department of Energy |
| 25C energy efficient home improvement credit (federal, homeowners) | Ended. Not allowed for property placed in service after December 31, 2025. | IRS |
| 25D residential clean energy credit (federal, homeowners) | Ended. Not allowed for expenditures made after December 31, 2025. | IRS |
| 45L new energy efficient home credit (federal, builders) | Not allowed for qualified homes acquired after June 30, 2026. | IRS FS-2025-05 |
| Section 48 credit for geothermal heat pumps (federal) | Ground-source (geothermal) heat pump property can still qualify for the section 48 energy investment credit, with a later deadline than most other energy property. Confirm the dates and percentage that apply to your project with your CPA. | Eide Bailly summary of the 2025 law |
| Washington sales tax | Washington doesn’t give HVAC equipment a general sales tax break. On custom construction the contractor collects retail sales tax from the owner on the full contract price. | WA Department of Revenue |
What this means in practice
- Business owners: new HVAC equipment and qualifying improvements can often be written off in the year they go in, through section 179 or 100% bonus depreciation. Ask your CPA which one fits your situation.
- Commercial energy upgrades: 179D only helps projects whose construction began by June 30, 2026. If yours started before then, make sure your CPA knows.
- Homeowners: the federal 25C and 25D credits ended after 2025. Utility rebates are still out there. See rebates & incentives.
- Timing matters: placed-in-service dates, contract dates and construction start dates decide eligibility. Keep your contract, invoices and startup paperwork.
Utility rebates are separate
Seattle City Light, PSE, Snohomish PUD and Tacoma Power pay rebates on heat pumps, heat pump water heaters, VFDs and controls. Those are separate from tax treatment. Our rebates & incentives page lists current programs with sources.
Common questions
Can I deduct a new rooftop unit in the year I buy it?
Often, yes. Section 179 covers HVAC improvements to nonresidential buildings, and 100% bonus depreciation applies to qualified property acquired after January 19, 2025. Your CPA decides which applies. We’re not tax advisors.
Is the 25C heat pump tax credit still available?
No. The federal 25C credit isn’t allowed for property placed in service after December 31, 2025.
Is 179D still available?
Only for property whose construction began by June 30, 2026. It doesn’t apply to projects that start after that date.
Does Washington have a sales tax exemption for heat pumps?
Not a general one. On custom construction, the contractor collects retail sales tax on the contract price. Ask your CPA about anything specific to your situation.
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