Key Insight
The trailing-12 install revenue line on a 2024 or 2025 HVAC P&L is not a steady-state run rate — it is the residue of a federal tax credit that ended December 31, 2025. Underwriting the deal at trailing-12 install volume systematically over-prices it.
The credit framework that drove the demand
The Inflation Reduction Act of 2022 created two residential energy tax credits relevant to HVAC. The Section 25C Energy Efficient Home Improvement Credit provided up to $2,000 per year for qualifying heat pump installations. The Section 25D Residential Clean Energy Credit provided a 30% credit for qualifying geothermal heat pump installations. Together the credits materially reduced the consumer net cost of high-efficiency heat pump replacements through 2024 and 2025.
How OBBB ended the program
The One Big Beautiful Bill (P.L. 119-21), signed July 4, 2025, terminated both credits effective December 31, 2025. The termination created a final-quarter 2025 demand surge as homeowners rushed to qualify before the deadline, and a corresponding cliff entering Q1 2026. HVAC residential install volume in late 2024 and 2025 reflects that pull-forward; install volume from January 2026 forward reflects the post-credit demand baseline.
What the normalization looks like
The 2026 atlas sample assigns a 12%–22% normalization haircut on trailing-12 install revenue for shops with material residential heat pump install volume during the credit window. The exact magnitude depends on the residential mix (heavier residential heat pump exposure means deeper haircut), the share of the install pipeline driven by the credit (some shops marketed the credit explicitly; some did not), and the geographic market (states with state-level credit stacking saw deeper pull-forward). A buyer underwriting on uncorrected trailing install volume is materially over-pricing the deal.
How to verify the magnitude
The most reliable verification source is manufacturer warranty registration data. Carrier, Trane, Lennox, Goodman, and Daikin all maintain partner portals where contractors register installed equipment for warranty purposes. The registration data shows install date, equipment model, and customer location — and aggregates cleanly into a monthly install volume series that exposes the 2024–2025 pull-forward pattern directly. The diligence ask is a CSV export of warranty registrations from each OEM partner portal for the trailing 36 months.
A residential HVAC shop reports $4.2M trailing-12 install revenue. Manufacturer warranty data shows install volume in Q4 2025 ran 38% above the 2023 baseline; Q1 2026 has reverted toward the baseline run rate. Applying a 17% normalization haircut on the pull-forward portion produces a normalized install revenue line of $3.7M. SDE compresses correspondingly. Underwriting the deal at the trailing $4.2M would have over-priced it by mid-six figures at typical multiples.
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