The Federal AC Tax Credit Ended in 2025 — What NJ Homeowners Can Still Claim in 2026
Your Trusted HVAC & Plumbing Experts in Monroe Township, NJ
The federal tax credit for air conditioners and heat pumps ended on December 31, 2025. If you replace a system in 2026, there is no federal credit for it.
Here’s what most Monroe Township homeowners don’t realize: the New Jersey utility programs are still running, they were never tied to the federal credits, and for the right project they are worth considerably more than the federal credit ever was. PSE&G will pay up to $2,000 just for replacing your air conditioner with a heat pump while keeping your existing furnace — and up to $10,000 if you replace the furnace too.
Here’s exactly what went away, what’s still on the table, and the real numbers.
What ended, and when
Two separate federal credits covered home HVAC equipment. Both are gone.
Section 25C — the Energy Efficient Home Improvement Credit. The one most homeowners knew. Up to $2,000 for a qualifying heat pump, up to $600 for a central air conditioner, plus credits for insulation, windows, and doors. Expanded under the Inflation Reduction Act in 2022 and originally scheduled to run through 2032.
Section 25D — the Residential Clean Energy Credit. Covered geothermal heat pumps, solar, and battery storage at 30% of total installed cost with no dollar cap.
The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, terminated both for property placed in service after December 31, 2025.
“Placed in service” is the part that catches people. It means the date your system was fully installed and operational — not the contract date, not the deposit date, not the delivery date. There is no grandfather clause and no transition relief. A system ordered in November 2025 but started up in January 2026 does not qualify.
If you installed in 2025, you can still claim it
This is the piece worth acting on right now.
If your new AC, heat pump, or furnace was placed in service on or before December 31, 2025, the credit applies to your 2025 tax return — the one you file in 2026.
If you already filed and didn’t claim a qualifying 2025 installation, an amended return is worth a conversation with your tax preparer. If you filed an extension, your deadline is October 15, 2026 — the credit is still available to you, and that window is closing.
You’ll need the manufacturer’s certification statement and the AHRI certificate for your system. If RA Nichols installed your equipment, we can pull those from your file.
We’re an HVAC contractor, not a tax firm. This is general information about how the programs work — talk to your tax professional about your specific return.
Is there a federal replacement in 2026?
No. As of August 2026 there is no federal tax credit for residential central air conditioners, air-source heat pumps, or geothermal systems.
The only federal item still in play is a carryforward: unused 25D credit from a qualifying 2025-or-earlier installation that exceeded your tax liability can still carry forward. That’s a question for your tax preparer, not a new benefit for a 2026 purchase.
You may also see references to federal HEAR and HOMES rebates, the income-qualified programs funded through the Department of Energy. New Jersey received the funding, but as of this writing those rebates have not broadly launched. Don’t build a purchase decision around money you can’t yet apply for.
First, find out which utility serves you
Monroe Township is split territory. Parts of the township are served by PSE&G and parts by JCP&L. The two programs pay different amounts and work in completely different ways, so this is the first thing to check — your electric bill names your utility at the top.
Some homes have one utility for gas and the other for electric. If that’s you, you may be able to claim from both on the same project.
Track 1: Equipment rebates
These apply when you’re replacing equipment with a more efficient version of the same thing.
PSE&G rebates — credited instantly on your invoice
Current as of August 2026. Amounts and efficiency thresholds are published on the PSE&G HVAC Instant Rebates Program page.
JCP&L rebates — claimed by application after installation
Current as of August 2026. Amounts and application forms are published on the JCP&L HVAC Equipment Rebates page.
Two things worth pointing out.
JCP&L pays more than PSE&G on straight equipment swaps — $500 versus $300 on a Tier 1 heat pump. But PSE&G’s rebate comes off your invoice on installation day, while JCP&L’s arrives as a check after you or your contractor files the paperwork. And as you’ll see below, PSE&G has a second program that changes the picture entirely.
If you have PSE&G for one fuel and JCP&L for the other, the two can be combined on one claim. A Tier 2 air-source heat pump would draw $450 from PSE&G plus $750 from JCP&L — $1,200 total. Worth checking your two bills before assuming you only qualify for one.
Track 2: PSE&G Building Decarbonization — where the real money is
This is the program almost nobody in central New Jersey talks about, and for anyone replacing an air conditioner it’s the most important thing on this page.
PSE&G pays substantially more when a heat pump takes over some or all of your heating load. There are three tiers, all credited as instant rebates on your invoice, and they apply if you currently heat with natural gas, oil, or propane.
Hybrid Heat — replace your cooling system, keep your furnace
Rebate: the lesser of $2,000 or 30% of the project cost ($3,000 or 40% for income-qualified households), plus up to $1,500 per integrated control unit, limit two per home.
This one is written for exactly the situation most homeowners are in. Your AC is dying. Your furnace is fine. Instead of replacing the AC with another AC, you install an air-source heat pump that handles cooling in summer and most of your heating in the shoulder seasons, and your existing furnace stays in place for the coldest stretches. Integrated controls switch between them automatically.
Requirements: SEER2 ≥ 15.2, EER2 ≥ 11.7, HSPF2 ≥ 7.8. The heat pump has to be sized to exceed your cooling load and cover up to 90% of your heating load, and integrated controls between the heat pump and the furnace are mandatory.
Compare that to the $120 you’d get for a Tier 2 central air conditioner. Same failed AC, same replacement timing — roughly sixteen times the rebate.
Dual Heat — add a cold-climate heat pump, keep the fossil system
Rebate: the lesser of $5,000 or 50% of the project cost ($6,000 or 60% income-qualified), plus up to $1,500 per control unit (limit two) and an additional $2,000 for every extra cold-climate heat pump needed to meet your home’s heat load.
Similar idea, bigger commitment: a NEEP-listed cold-climate heat pump sized to 100% of your Manual J heat load, with your existing heating system retained and integrated controls managing both.
Clean Heat — full replacement of the fossil system
Rebate: the lesser of $10,000 or 50% of the project cost ($12,000 or 60% income-qualified), plus up to $2,000 for decommissioning, up to $2,000 for re-ducting if Manual D calls for it, and $2,000 for each additional cold-climate heat pump required.
Your old furnace or boiler is removed or disabled and a cold-climate heat pump system takes over the whole load.
Also under this program
- Ground source (geothermal) heat pump: the lesser of $3,000 per 10,000 BTUH or 50% of project cost for gas customers; $4,000 per 10,000 BTUH or 50% for oil and propane customers; income-qualified households add $1,000 per 10,000 BTUH.
- Heat pump water heater replacing a gas or oil unit: $750 — versus $450 under the standard equipment track.
- Electrical upgrades to support the above: up to $300 per 240V circuit (limit four) or $300 for a panel replacement. Income-qualified households can receive up to $4,000 for a panel and up to $2,500 for wiring.
A few conditions apply across the decarbonization tiers: Manual J load calculations and Manual S equipment selection have to be submitted, decommissioning forms are required where you’re removing a fossil system, and the work has to be done by a contractor participating in the PSE&G program and approved for building decarbonization projects specifically.
Track 3: Whole Home Energy Solutions
Separate from everything above, New Jersey runs a statewide program through the utilities under Board of Public Utilities oversight. It pays based on how much total energy your project is modeled to save — starting around $2,000 for a 5% improvement and scaling to $7,500 for the deepest retrofits, with 0% financing up to $25,000.
This one starts with a home energy assessment and rewards packages rather than single pieces of equipment. Program details are published by PSE&G and JCP&L. If you’re replacing an aging AC and you also have thin attic insulation or a leaky envelope, bundling is usually worth more than doing the AC alone.
Paying for it
PSE&G offers 0% on-bill repayment up to $25,000 for an HVAC project, repaid in equal installments on your monthly bill. For building decarbonization work that allowance rises to $50,000 for a standalone project, or up to $75,000 combined. Terms run 84 or 120 months depending on project size and household income. JCP&L customers have financing available through a separate program partner.
What this actually means for your replacement decision
Three practical takeaways.
Waiting no longer saves you anything. For years the advice was to time replacements around federal credits. That reason is gone. The calculation is now purely repair cost versus replacement cost versus operating savings.
If your AC is failing and you heat with gas or oil, price the Hybrid Heat option before you buy another air conditioner. A like-for-like AC swap earns $60 or $120 from PSE&G. The same job structured as a partial-displacement heat pump earns up to $2,000, plus up to $1,500 for the control unit, and lowers your heating bill for the rest of the system’s life. That’s not a small difference at the margins — it’s a different decision.
Efficiency tiers matter more than they used to. On the JCP&L schedule, moving from SEER2 15.2 to SEER2 17.1 on a heat pump is worth an extra $250 before you count a dollar of energy savings. On PSE&G it’s $150. That changes which model makes sense.
Frequently asked questions
Is there a federal tax credit for a new air conditioner in 2026?
No. The Section 25C Energy Efficient Home Improvement Credit terminated for equipment placed in service after December 31, 2025, under the One Big Beautiful Bill Act. There is currently no federal tax credit for a residential central air conditioner or heat pump installed in 2026.
I signed a contract in 2025 but the system was installed in 2026. Do I still get the credit?
No. The credit depends on the “placed in service” date — when the system was fully installed and operational — not the contract or payment date. There is no transition relief for work that carried into 2026.
Can I still claim the credit for a 2025 installation?
Yes. If your system was placed in service on or before December 31, 2025, it belongs on your 2025 return. If you already filed without claiming it, ask your tax preparer about amending. If you filed an extension, your deadline is October 15, 2026.
How much is the PSE&G rebate for a heat pump?
Under the standard equipment program, PSE&G pays $300 for a Tier 1 air-source heat pump (SEER2 ≥ 15.2), $450 for Tier 2 (SEER2 ≥ 17.1), and $600 for a qualifying cold-climate model. If the heat pump also takes over part of your heating load, the Building Decarbonization program pays considerably more — up to $2,000 for a hybrid setup, up to $5,000 for dual-fuel, and up to $10,000 for full replacement of a fossil-fuel heating system.
What rebates can I get for a heat pump in Monroe Township, NJ?
It depends on your electric utility. JCP&L pays $500 to $1,000 for an air-source heat pump depending on efficiency tier. PSE&G pays $300 to $600 on equipment alone, but up to $10,000 through its Building Decarbonization program when the heat pump displaces fossil-fuel heating. Both may also qualify for up to $7,500 through the statewide Whole Home Energy Solutions program.
Can I get a rebate for replacing my air conditioner with a heat pump but keeping my furnace?
Yes, and it’s one of the largest rebates available. PSE&G’s Hybrid Heat program pays the lesser of $2,000 or 30% of project cost for replacing your cooling system with an air-source heat pump while keeping your existing heating system, plus up to $1,500 for the required integrated control unit. The heat pump must exceed your cooling load and cover up to 90% of your heating load.
How do I know whether PSE&G or JCP&L serves my home?
Check your electric bill — the utility is named at the top. Monroe Township is split between the two, so your neighbor’s answer may not match yours. Some homes have one utility for gas and the other for electric, in which case rebates from both may be combined on the same project.
Is a heat pump worth it in New Jersey winters?
Modern cold-climate heat pumps are rated to maintain output well below freezing, and both utilities pay their highest equipment rebates for exactly that equipment. For many central New Jersey homes a hybrid setup — heat pump for most of the season, existing furnace for the coldest stretches — gives the best balance of comfort, operating cost, and rebate value.
Does a straight air conditioner replacement still qualify for anything?
Yes, though far less than a heat pump. PSE&G pays $60 or $120 depending on efficiency tier; JCP&L pays $100 or $200. Both require the complete system to meet the AHRI-rated minimums, so pairing a new high-efficiency condenser with an older air handler will often disqualify the job.
Talk to someone who works with these programs
RA Nichols Home Services has installed and serviced cooling systems across Monroe Township and central New Jersey since 2007, when Anthony Nichols founded the company. We’re a certified Daikin Comfort Pro dealer working under NJ HVAC License #19HC00263900, and our estimates come in writing before any work starts — including which rebates your specific equipment and utility qualify for, so there are no surprises after installation.
If your AC is on its last season, it’s worth a conversation about whether a heat pump changes the math for your home. Financing is available through Optimus and GreenSky.