Heat pump tax credits: How much can you get back?

This story has been updated. It originally published on August 29, 2024.

How we heat and cool our homes during extreme temperatures is top-of-mind for many Americans, especially given that more than half of the energy demand of homes in the U.S. goes toward space heating and air conditioning. Finding ways to lower the carbon intensity of those activities is important, and spiking energy use most-often also means a jump in greenhouse gas emissions.

Enter heat pumps, an appliance that exchanges thermal energy (read: warm air to cold, and vice-versa) to climate control a home. Even if you live on a fossil fuel–heavy grid, switching to a heat pump lowers a home’s planet-warming impacts: Recently published research shows that a dwelling’s annual carbon dioxide equivalent emissions could be lowered by as much as 4.4 tons per year.¹ That’s equivalent to not driving for a full 12 months.² Paired with a home that uses insulation and proper air sealing to create a tight thermal envelope, and you’ve got an incredibly energy efficient and sustainable set up.   

As upgrades go, a heat pump is not exactly cheap. But the Inflation Reduction Act has funded several forms of financial assistance to lessen the burden on taxpayers willing to make the switch to climate-friendlier home infrastructure. Due to the recent passage of the Trump administration’s budget bill, many of these tax incentives are going to be phased out at the end of 2025, as opposed to in the mid-2030s, as originally planned, 

Here, we’ll run down the incentives available for heat pumps—plus a few other types of equipment, like biomass boilers and furnaces, although you should still consult with a tax pro to dot your i’s and cross your t’s.

But before diving into the incentives, let’s get on the same page about terms. A tax credit reduces how much you owe on your annual tax bill. If you tend to get a refund every April, you probably can’t use a tax credit. Using rebates doesn’t require a high tax bill, however. Unlike a tax credit, a rebate can be deducted from your bill when you buy a product or service, according to Jennifer Amann, a senior fellow in the buildings program at the American Council for an Energy-Efficient Economy.

Energy Efficient Home Improvement Credit

The Energy Efficient Home Improvement Credit has a laundry list of eligible products that help you optimize every bit of energy your home uses. That includes heat pumps, heat pump water heaters, biomass stoves and biomass boilers. Those products and related services have different eligibility requirements covered here. This credit was originally set to phase out at the end of 2032, but the latest budget bill shortened the timeline to end on December 31, 2025. 

How much money is available?

Prior to the Inflation Reduction Act, you could only use this incentive (formerly called the “nonbusiness energy property credit”) as a $500 lifetime credit, meaning you couldn’t repeatedly tap into it. Now, for any projects or purchases made after 2023 and before the end of 2025, you’re able to get an annual credit of 30% of energy efficiency projects you take on in a given year up to $1,200. That means, if you spent $4,000 total on eligible projects, you could take advantage of the full $1,200 credit (assuming your tax bill was more than that amount).

However, this credit is raised to $2,000 for projects including heat pumps, biomass stoves and boilers, and heat pump water heaters. This basically means that if you decide to take on a heat pump project as well as a home envelope improvement, you can get up to $3,200, according to Energy Star.

What’s covered?

This incentive covers the equipment and labor costs for electric or natural gas heat pump water heaters; electric or natural gas heat pumps; and biomass stoves and biomass boilers.

That 30% cap also applies to central air conditioners; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces and hot water boilers; and improvements to your electric panel, circuits, or related equipment. But for these items, the IRS limit drops the limit to up to $600, as opposed to the $1,200 annual cap for a heat pump.

Biomass stoves and boilers must have a minimum thermal efficiency rating of at least 75% to be eligible. This metric is a measure of how much output a product uses compared to how much it needs to operate. Central air conditioning systems also have efficiency standards to meet before being eligible for the credit. Electric panel upgrades have to follow the National Electric Code and have a load capacity— meaning how much electricity the system can safely run—of at least 200 amps. 

Am I eligible?

Anyone who has a tax bill large enough to utilize the credit is eligible. You need to file part II of a form 5695 with your taxes and only apply for the credit for products installed in that same tax year. 

What else should I know?

Any amount above that $1,200 (or $3,200, if you decide to go for a heat pump or similar technology) comes after any rebates or subsidies your utility provides. The pump also has to go into an existing primary home—meaning the incentive isn’t valid for, say, putting one into your vacation house at the lake or a brand-new home. There are also some specific requirements for those who work from home.

Residential Clean Energy Credit

The Residential Clean Energy Credit is available for folks who want to adopt renewable energy technologies at home, whether for power generation or heating and cooling. It covers a lot— see our guide to the residential energy credit for the full list—but we’ll talk about how it applies to geothermal heat pump tech. This credit was originally set to phase out at the end of 2034, but the incentive is now set to end on December 31, 2025. 

How much is available?

The Residential Clean Energy Credit can offset 30% of the cost of new—not used—equipment, so long as it’s installed in a home between 2022 and the end of 2025. (Previously, the cap would have dropped to 26% and 22% for anything installed after 2033 or 2034, respectively.) Unlike other incentives, there’s no cap on what that credit can be, so long as it’s matching the percentage.

What’s covered?

The credit covers basically anything that helps you reduce the emissions from heating, cooling, or powering your home. But in terms of heat pump technologies, it’s good for the purchase and installation of a geothermal heat pump, which taps thermal energy from below the Earth’s surface or in groundwater.

Am I eligible?

Anyone who has a tax bill large enough to utilize the credit (even over multiple years, in this case) is eligible. You need to file part I of form 5695 with your taxes.

What else should I know?

While the equipment has to meet Energy Star requirements, it doesn’t have to be installed at your primary home. The IRS also requires you to subtract the value of any rebates or utility-provided subsidies you receive, although whether you need to deduct state energy efficiency incentives depends on how your state’s program is structured. 

Unlike the other incentives, you can apply any unused credit to a future year. So, for example, if you spent $15,000 on a geothermal heat pump and your tax bill was going to be $10,000 for both 2025 and 2026, you could apply $10,000 of the $15,000 on your 2025 bill and save the remaining $5,000 for 2026. However, you can’t factor in any interest paid on related project loans.

High-efficiency Electric Home Rebate

This financial incentive is structured differently than the others, but the High-efficiency Electric Home Rebate shares the same goal: decarbonize and improve the efficiency of your home. There is no reported change to this rebate for low- and moderate-income households as of July 10, 2025. 

How much is available?

Within the heat pump technologies, HVAC systems qualify for an up to $8,000 rebate, water heaters up to $1,750, and clothes dryers up to $840, according to Rewiring America, an electrification nonprofit. Depending on your income level, you’ll be eligible for either a 100% or 50% rebate of project costs up to $14,000.

What’s covered?

These rebates extend to the purchase and installation of different heat pump technologies, including HVAC systems, water heaters, and clothes dryers. Other types of equipment are also eligible through this rebate, but head to this article to learn more about those. 

Am I eligible?

Unlike with the tax credits, you don’t need to have a sizable tax bill to tap into rebates. Instead, the High-efficiency Electric Home Rebate is offered at the point-of-sale—that’s when you’re at the register or signing the sales contract. That’s a major benefit for low- to moderate-income families.

However, the amount you’re eligible for will differ depending on whether you’re considered low-income or moderate-income. If your household earns less than 80% of your area’s average median income, you’re entitled to a 100% rebate on the costs involved, including installation. For a moderate-income household (defined as making 80% to 150% of the area’s average median income), you’re looking at a 50% rebate.

What else should I know?

These rebates are not available yet in most places. That’s because state, territory, and tribal governments (plus the District of Columbia) need to apply for the funds from the federal government, and those applications take time to draft, file, and review. 

As of January 2025, every state but South Dakota is participating in the program and $2.9 billion has been awarded thus far. According to Rewiring America, efficiency rebates were available in Georgia, Michigan, North Carolina, Washington D.C., and Wisconsin as of January 30, 2025. However, some states have delayed or paused this program due to uncertainty in federal funding, so it is essential that you check with your state’s department of energy for the complete picture. 

1. Heat Pumps for All? Distributions of the Costs and Benefits of Residential Air-Source Heat Pumps in the United States, Joule, Apr. 2024 ↩︎
2. Greenhouse Gas Equivalencies Calculator, United States Environmental Protection Agency, Jan. 2024 ↩︎