The One Big Beautiful Bill (OBBB) was signed into law by the president on July 4, 2025. The 870-page behemoth covers a wide range of topics. The HVAC industry felt multiple impacts from the bill, some positive and some negative.
What's Changing?
The OBBB is eliminating several tax credits that impact HVAC decisions. Here's a brief rundown.
- Section 25C (Energy Efficient Home Improvement Credit): This tax credit was for homeowners who install qualifying energy-efficient upgrades such as heat pumps, energy-efficient windows, doors, insulation, and electrical upgrades. The credit was for up to $3,200. The credit will end on Dec. 31, 2025.
- Section 25D (Residential Clean Energy Credit): This tax credit, which covers residential clean energy (geothermal and solar), will end on Dec. 31, 2025. The credit covered up to 30% of installation costs.
- Section 179D (Energy Efficient Commercial Buildings Deduction): This provision for energy-efficient commercial buildings enabled owners to claim a tax reduction per square foot for improving the energy efficiency of new and existing buildings. The credit will end on June 30, 2026.
- Section 45L (New Energy Efficient Home Credit): The credit, which incentivizes builders to construct energy-efficient new houses and apartments, has been a significant driver of the Energy Star Certified Homes Program for new home construction. The credit will end on June 30, 2026.
Why were these tax credits removed despite the urgings of many in the HVAC community?
"If you read the messaging that came out following the House Ways and Means Committee's advancement of their version of the bill, the Republican caucus has a real issue with consumer-facing credits," said Ryan Dougherty, executive director of the GeoExchange, a nonprofit national trade association representing companies and individuals in the geothermal heating and cooling industry.
Wins and Losses
Removing some of the energy efficiency upgrade tax credits for heat pumps, geothermal, and solar upgrades will undoubtedly impact the market.
The nonprofit research organization, American Council for an Energy-Efficient Economy (ACEEE), which develops policies to reduce energy waste and combat climate change, denounced the OBBB. In a press release, the organization's executive director, Steven Nadel, said, "The bill will raise energy costs and make it harder to keep the lights on."
Nadel added, "Taking away incentives for energy-saving improvements would raise monthly bills for families and businesses. It will only exacerbate the growing strain on the electric grid."
Despite the removal of multiple rebates and tax incentives, the OBBB does offer some wins for the HVAC contracting industry.
"We see in the One Big Beautiful Bill some fantastic wins for contractors, and on balance, it has more benefits for contractors and the contracting business," said Sean Robertson, vice president of membership, advocacy, and events for the Air Conditioning Contractors of America (ACCA).
Robertson counts Section 179, which allows for immediate expensing of commercial HVAC equipment, as a win for HVAC contractors. "The OBBB increased the cap on Section 179 and combined it with bonus depreciation, which makes it a powerful incentive, allowing commercial customers to expense in one year equipment that previously had to be depreciated over half of 39 years."
Other wins include making 199A (small business tax deduction) permanent. The provision matches the corporate tax cuts that the Federal Government made permanent in the 2017 tax bill and allows small businesses that are pass-through entities to enjoy those same benefits. "In many cases, it levels the playing field between small business and big business," Roberston said.
Another win is the expansion of 529 accounts and Pell Grants to cover more trade-related education, including in-house training programs and high-quality short-term trade education programs.
Impact on HVAC Contractors
Removing tax credits and provisions is sure to shake up the marketplace.
"Clearly, there's some anxiety in the marketplace because tax credits are an addictive substance," Dougherty said. "When you inject them into the market and people start to rely on them, yanking them away is going to be challenging. We're basically telling everyone to adapt to an entirely new environment overnight."
The elimination of 25C (the ability to offer up to $3,200 to homeowners towards installation of heat pumps, etc.) will negatively impact customers' purchasing decisions. In the short run, the impact could be positive.
"I think the silver lining of the year-end deadline is that it can lend urgency to customers making a buying decision, particularly coming into the winter," Robertson said. "Smart contractors should be out there now preparing to make the most of this tax incentive before Dec. 31."
When the incentive is fully phased out, contractors will probably see more customers shift towards minimum efficiency systems and smaller jobs. What can HVAC contractors do to try to maintain sales of geothermal systems?
"A good initial step for a contractor to talk to a homeowner effectively about this type of technology is getting training from the International Ground Source Heat Pump Association," said Eric Torykian, executive director of Mission GEO, which promotes awareness and benefits of geothermal heat pump systems.
The key Torykian says is replacing myth with math. "When people aren't used to something, they initially object to it. For example, the homeowner may want geothermal heating and cooling in their home, but the contractor says, 'I have a similar product at two-thirds the cost.'"
"The residential contractor needs to be educated about the benefits of a system that lasts twice as long as a traditional unit, has four times the efficiency, and doesn't use any gas," Torykian said.
Another point Torykian suggests contractors use to sell customers on geothermal heat pumps is to ensure they understand it may increase the asset value of their home. "Even if they're going to move in five years, the next buyers will inherit reduced operations and maintenance costs and a longer system life."
The long-term benefits of geothermal heat pumps are clear. However, upfront costs are steep.
"The biggest impediment to adoption of geothermal is the high upfront cost compared to conventional HVAC equipment," Dougherty said. The challenge of adopting geothermal is heightened because HVAC replacements often happen in emergencies, leaving little opportunity for thoughtful planning or investment.
Unlike the solar industry, which overcame similar barriers through third-party ownership models like leases and power purchase agreements, geothermal lacks widespread financing innovation. “The OBBB added to the revenue code the ability for geothermal systems to be leased for the first time," Doughtery said, "which will allow industry stakeholders to pursue these sorts of business models."
Ultimately, sales come down to relationships.
"It's cultivating that customer relationship and emphasizing the quality job that your company delivers versus simply selling a more efficient piece of equipment," Robertson says.
The OBBB brings significant changes for the HVAC industry by eliminating key consumer tax credits while offering new incentives for contractors and manufacturers. As the landscape shifts, HVAC professionals can adapt to continue selling energy-efficient solutions. Success in this new environment will depend on how well contractors communicate value, build trust, and pivot from selling incentives to selling real, lasting performance.
