Hardware, Plumbing & HVAC Distributors NAICS 4237

Jul 23, 2025 - New Tax & Spending Law Cuts Tax Incentives for HVAC Upgrades

• A budget reconciliation law signed by President Trump in July includes provisions that will prompt an early sunset of tax credits for several types of residential energy efficiency improvements. The Biden-era Inflation Reduction Act (IRA) incentivized homeowners to make energy efficiency upgrades, including purchasing electric heat pump HVAC systems. The tax credits and rebates were set to be in place for 10 years, but the One Big Beautiful Bill Act of 2025 ends the tax credits at the end of this year. The IRA also made permanent 179D tax deductions for energy efficiency upgrades for commercial buildings, including HVAC. The new law eliminates 179D tax deductions effective June 30, 2026.
• North American construction and engineering spending in 2025 is expected to grow by 1% after increasing an estimated 7% in 2024, according to FMI’s third-quarter 2025 North American Engineering and Construction Outlook. Nonresidential building construction spending is forecast to rise 1% in 2025, led by growth in data centers (up 32% over 2024 spending), amusement and recreation (+6%), educational (+4%), and transportation (+4%). Nonresidential building construction spending will be tempered by weakness in warehouse (down 5% compared to 2024 spending), commercial (-4%), lodging (-3%), and manufacturing (0%). Amid high mortgage interest rates and a lack of affordability, single-family construction spending is forecast to rise by 1% in 2025. A recent jump in new apartment supply and unfavorable cost conditions will reduce multifamily spending by 9% in 2025.

• Home remodeling spending growth is expected to remain flat in 2025 and the first half of 2026, according to the Leading Indicator of Remodeling Activity (LIRA) report by the Joint Center for Housing Studies at Harvard. Homeowner improvements and repairs are expected to increase 2% to $509 billion in the third quarter of 2025 compared to Q3 2024. In the fourth quarter of 2025, remodeling spending will rise quarter-over-quarter to $511 billion, up 1.8% from Q4 2024. Spending will increase to $524 billion in Q1 2026, up 2.2% from Q1 2025. In the second quarter of 2026, year-over-year spending is forecast to rise 1.2% to $518 billion. Joint Center expects a weak housing market to put downward pressure on remodeling spending. However, recent federal cuts to incentives for efficiency improvements may spur short-term growth as homeowners make upgrades before benefits expire at the end of the year.
• Single-family housing starts decreased 4.6% in June 2025 from May, marking the weakest starts activity since June 2024, according to the US Census Bureau. Permitting activity for single-family housing – an indicator of future homebuilding activity – rose 0.2% in June compared to the month before. High interest rates, economic uncertainty, and an oversupply of unsold new homes are weighing on the US homebuilding market, according to Reuters. The inventory of new homes waiting to be sold is the highest since 2007. Some economists suggest that lower interest rates would be a lifeline for the sluggish housing market, but the Federal Reserve is concerned that lowering rates could exacerbate the inflationary effects of the Trump administration’s tariff policies.