The HVAC market enters the peak summer season of 2026 navigating a pair of simultaneous cost pressures: a fresh round of manufacturer price increases that took effect in June, and the full expiration of the federal HVAC tax credit programs that had reduced the net cost of high-efficiency heat pump and air conditioning systems for residential buyers since 2022.
The One Big Beautiful Bill, signed into law in July 2025, terminated Sections 25C and 25D of the Internal Revenue Code effective December 31, 2025. Section 25C had provided an annual tax credit of up to $2,000 on qualifying heat pumps and air conditioners. Section 25D had provided an uncapped 30% credit on geothermal heat pump systems that routinely generated credits of $8,000 to $10,000 per project, making geothermal economically accessible for a significantly larger share of the market than would have been reached at full unsubsidized prices. Both credits are now gone, and no federal replacement has been introduced or appears imminent.
The Compounding Effect on Replacement Decisions
For the residential replacement market, the credit expiration arrives on top of the A2L refrigerant transition cost increases that manufacturers have been passing through since 2025. Carrier has publicly stated that units using R-454B refrigerant cost approximately 10% more than equivalent R-410A equipment because of the redesigned components and updated controls required by the new refrigerant's properties. When that equipment transition cost increase is combined with tariff-driven material cost increases and the loss of the Section 25C credit, the net out-of-pocket cost for a homeowner replacing an air conditioner or heat pump with a qualifying high-efficiency system has risen substantially since 2024 — by estimates from contractors and distributors, the combination of these factors has increased the effective cost of a mid-tier heat pump installation by several thousand dollars in markets where consumers were previously stacking federal tax credits with state or utility rebates.
The demand impact of the credit expiration has not yet fully materialized in publicly available industry data, since the credits expired December 31 and the first quarterly equipment shipment reports covering the period after expiration are still being compiled. However, several HVAC manufacturers noted on first-quarter 2026 earnings calls that residential demand remains soft and that a full market recovery from the refrigerant-transition disruptions of 2025 is expected to take more than one year. With the credit programs now gone, the demand recovery is likely to be slower than manufacturers had originally projected when the IRA credits were still in place.
The DOE Rebate Program as a Partial Substitute
The Department of Energy's revised guidance for the $8.8 billion Home Energy Rebates program, issued June 25, provides some replacement for the lost tax credits through the HOMES and HEEHR rebate mechanisms. However, the revised HEEHR guidance's removal of fuel-switching allowances means the program no longer provides direct incentives for the most common residential heat pump installation scenario — replacing a gas furnace or central air conditioner with a heat pump — unless the home already has electric HVAC equipment being upgraded to a higher-efficiency electric alternative. State programs funded by IRA money can design their own rules within the DOE guidance, leaving some room for state variation, but the federal framework has narrowed significantly relative to what had been anticipated when the IRA was enacted.
For contractors trying to close heat pump sales in the 2026 replacement market, the combined landscape — no Section 25C credit, DOE rebate rules narrowed to electric-to-electric upgrades, and manufacturer price increases compounding from multiple directions — creates a more challenging customer conversation than the one that existed two years ago. Market data from HARDI's monthly distributor sales report will provide the first systematic evidence of how the post-credit residential market is performing, with the April reading showing a 4.5% year-over-year increase but the specific equipment mix within that figure not yet detailed in publicly available reporting.
June 2026 Accessory and Component Increases
Against this backdrop, a fresh round of June 2026 price increases from manufacturers including Airex, Armacell, Design Polymerics, DiversiTech, Emerson Nidec Motors, Jones Stephens, and Pro-Flex adds to the pressure on contractor margins for installations using standard accessory and materials packages. The increases range from 1% on some DiversiTech products to 10% on Jones Stephens insulation products, with most falling in the 2% to 8% range across affected product categories. For distributors managing inventory and contractors quoting multi-week jobs, tracking the effective date and scope of each manufacturer's adjustment requires active monitoring of supplier communications and pricing tables — a workload that has become routine but that compresses the time available for other operational priorities during peak summer season.
