The Federal Reserve cut rates for the second time in 2025 this week. While that's not great news for savers, it's good news for borrowers. If you've been waiting on rates to drop to take out a home equity line of credit or HELOC or personal loan for some home improvement projects, now is the time to strike.
While rates are expected to come down further, the clock is ticking on a package of energy-efficient home improvement tax credits that could put thousands back in your pocket after making eligible upgrades to your home.
You can always refinance a loan when rates drop further, but you won't be able to claim these tax credits after the new year, making this the "just right" time for home upgrades.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Here are the home upgrades that might be eligible and why it's worth squeezing these projects in before the year ends.
Tax credits worth up to $3,200 expire in December
The One Big Beautiful Bill ushers in several changes that taxpayers will need to consider as they plan for 2026. One of the most urgent changes you'll want to prepare for are the expiring tax credits.
Right now, you can claim 30% of the cost of any eligible residential clean energy upgrade made during the year.
You can also claim up to 30% of other energy efficient upgrades, with maximum credits ranging from about $150 up to $2,000, depending on the project. You can claim up to a total of $3,200 for all energy efficient home improvement projects completed through the end of the year.
Which projects are eligible for tax credits? You can find the full details on the IRS website.
Here are some of the key projects you might want to get done before December 31, 2025, to claim the energy efficient home improvement tax credit:
- New exterior doors or windows
- New insulation or air sealing materials
- Upgraded HVAC equipment
- Upgraded water heaters, biomass stoves or boilers
If you've been thinking about installing solar panels or other renewable energy equipment in your home, the residential clean energy credit also expires on December 31. You'll need to move fast if you were banking on that 30% tax credit.
Make sure that the upgrades you're making meet the energy efficiency standards set out by the Environmental Protection Agency (EPA). You'll also only be able to claim these credits on your primary residence. Your vacation home or rental properties are ineligible.
You should also check with your state as well as your local utilities for any additional rebates or discounts you might be able to stack on top of your federal tax credits.
Falling Fed rates are good news for borrowers
At its October meeting, the Federal Reserve dropped its target rate to the 3.75% to 4% range. That's the second cut of the year, which should bring borrowing costs down with it.
For homeowners planning to use a HELOC, that's even more reason to knock out those renovation projects you've been putting off.
Rates on home equity loans also tend to drop in response to Fed rate cuts — as do other types of debt. If you haven't taken out a home equity loan or HELOC yet, use our home equity tool below, powered by Bankrate, to compare rates you can get today:
You'll benefit from hiring contractors during the off season, too
Winter is a slow season for many contractors, especially with the holidays approaching. Some might be willing to offer discounted rates for projects during this time.
Even if you can't leverage your timing into a deal, it could at least ensure your project is done quickly and smoothly. Since contractors are unlikely to be juggling as many projects as they do during peak season, your home could be high on their priority list.
Related content
-
Turkey, Tariffs, and Grocery Taxes: The Cost of Thanksgiving Dinner This YearFood Taxes For some who celebrate, Thanksgiving can mean a full table, family, and a sense of gratitude. But in 2025, it also means a focus on the bottom line.
-
Taxes on Investments: How Well Do You Know IRS Capital Gains Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
Amazon Haul Gift Guide: Under-$20 Gifts That Keep Your Holiday Budget in TactFrom stocking stuffers to budget-friendly crowd pleasers, these are the best under-$20 gifts on Amazon Haul right now.
-
When Helping Mom and Dad Hurts Your WalletNew research shows how assisting an aging parent with expenses can strain your own finances.
-
6 Quick Money Moves to Make Before the Year EndsFinish the year strong with smart money moves that can boost savings, trim taxes and set you up for a better 2026.
-
Want to Change Banks? Try This 'Soft' StrategyThe "soft switching" banking trend allows you to explore a new bank account while keeping your primary one. See how it could benefit you.
-
I'm an Attorney and a CPA: Charitable Giving Just Got a Little Easier, But Also a Little HarderThe OBBB shakes up charitable deductions with a little help for non-itemizers and a new challenge for itemizers this holiday season.
-
I'm 57 With a Great Remote Job, but My Company Wants Me in the Office Full-TimeWe asked career planning and human resources experts for advice on how to handle return-to-work orders.
-
Four Big Airport Rule Changes for FlyersChanges are afoot for domestic flights — and for some international trips, too.
-
To Tip or Not to Tip: Updated GuidelinesIf you’re weary of widespread prompts to leave a gratuity, follow these guidelines for when it’s customary — and when you can skip it.
