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Tax Credits and More: Incentives for Installing Home Heat Pumps

By May 2, 2024May 7th, 2024Heat Pumps, Tax Credits
Tax Credits and More: Incentives for Installing Home Heat Pumps

Did you know that federal and state tax credits are available for simply installing a heat pump?

In recent years, the urgency to combat climate change has led to an increased focus on sustainable energy solutions. Among these, heat pumps have emerged as a popular choice for heating and cooling homes efficiently while reducing carbon emissions.

Recognizing the importance of transitioning to cleaner energy sources and conserving energy, governments around the world have implemented various tax credits and incentives to encourage homeowners to adopt heat pump technology. Let’s explore some of the available options for American homes and homeowners looking to leverage these benefits by installing home heat pumps.

Understanding Heat Pumps

Before we get into explaining the available incentives, it’s essential to understand what heat pumps are, how they work, and why they’re better now and in the long run.

Heat Pump Operation

Unlike traditional heating systems that generate heat, heat pumps extract heat from the air, ground, or water and transfer it into or out of a building to provide heating or cooling. This process is highly energy efficient and can significantly reduce utility bills while lowering greenhouse gas emissions.

Why Heat Pumps?

Believe it or not, heat pumps are 3-5 times more efficient than most current fossil fuel heating systems, saving money on utility bills. And, because heat pumps can use renewable energy to generate electricity, they’re climate-friendly, too, doing less harm to the environment.

According to data from the National Renewable Energy Laboratory, switching to a heat pump can reduce annual heating and cooling bills anywhere from $100 to $1,300 per year with the average homeowner saving $667 per year by switching to a heat pump.

We’ve known for years that improving energy efficiency through technology would have both immediate as well as lasting effects. In fact, a 2021 report by Environment America Research & Policy Center, found that electrifying the majority of America’s buildings by 2050 could reduce net greenhouse gas emissions by about 306 million metric tons. That’s the equivalent of taking about 65 million cars off the road—almost three times the number of vehicles in Texas.

Long-Term Savings

While the upfront cost of installing a heat pump may be higher than traditional heating and cooling systems, the long-term savings in energy costs can outweigh the initial investment. Heat pumps are highly efficient, and homeowners can expect to see a reduction in their utility bills over time. Additionally, with available home energy tax credits and incentives, the payback period for installing a heat pump can be further shortened.

Environmental Benefits

Beyond the financial incentives, installing a heat pump offers significant environmental benefits. By reducing reliance on fossil fuels for heating and cooling, homeowners can lower their carbon footprint and contribute to combating climate change. Heat pumps operate using electricity, which can be generated from renewable sources such as solar or wind power, further reducing emissions.

The IRA and Federal Tax Credits

In the United States, the federal government offers tax credits for homeowners who install qualifying energy-efficient heating and cooling systems, including heat pumps. There is no income limit for these specific tax credits—the only qualification required is that the homeowner has tax liability.

The Inflation Reduction Act (IRA), passed in August 2022, represents the largest governmental investment in greenhouse gas reduction ever. It includes tax credits for heat pumps, heat pump water heaters, weatherization, electric panel upgrades, solar, and battery storage.

Through the IRA’s Energy Efficient Home Improvement Credit, if qualified energy-efficient improvements are made to a home after Jan. 1, 2023, the homeowner may qualify for a tax credit up to $3,200—and they can claim the credit for improvements made through 2032. For heat pump and heat pump water heater projects, the tax credit amount is 30% of the total project cost (including equipment and installation), up to a $2,000 maximum.

Essentially, if a project costs a homeowner $1,000, they can claim 30% of it ($300). If a project costs $10,000, they can claim a $2,000 tax credit (tax credits are applied to the tax year the heat pump is/was installed).

Income-Dependent Heat Pump Rebates

In addition to the federal heat pump tax credit, homeowners may soon also be eligible for $1,750 to $8,000 toward a heat pump purchase in the form of a state-administered IRA rebate. This is part of a $4.5 billion federally-funded program that is expected to last through 2031. These rebates will be rolled out on a state-by-state basis over the course of 2024, with any remaining states taking their rebates live in 2025.

The program, known as the High-Efficiency Electric Home Rebate Act, or HEEHRA, will be available at the point-of-sale so that homeowners benefit from the savings upfront, rather than having to wait until tax season. Additionally, they will only be available to low and moderate-income households with eligibility determined by the Area Median Income (AMI) where the heat pump will be installed.

State and Local Incentives

In addition to federal tax credits, many states and local governments offer their incentives and rebates for installing heat pumps. These incentives can vary widely depending on location and may include cash rebates, low-interest loans, or property tax incentives. Certain states may also offer additional incentives for low-income households to help make energy-efficient upgrades more accessible.

Utility Rebate Programs

To help make the decision to switch even easier, some utilities offer rebates for upgrading to a heat pump.

For example, in Denver, Colorado, if a homeowner installs a heat pump, they may qualify for an additional $8,000 in incentives, including $4,500 in rebates from the city, $2,200 in rebates from the local utility, and a $1,300 state tax credit.

Similarly, an average homeowner in the greater Boston area who installs a heat pump may qualify for up to $10,000 in additional rebates (assuming the heat pump being installed will be the sole source of heating and cooling for the home).

These rebates and similar incentives can offset a portion of the upfront costs of purchasing and installing a heat pump. Homeowners are advised to check with their utility provider to see if any rebates or incentives are available and what requirements need to be met to qualify.

While there is no single digital hub that captures every tax credit and rebate available across the country, the Database of State Incentives for Renewables & Efficiency is a great place to start when researching the available rebates on the state and national levels.


Installing a heat pump offers numerous benefits for homeowners, including energy savings, environmental impact reduction, and increased comfort. By taking advantage of available tax credits, rebates, and other incentives, homeowners can make the transition to a more sustainable heating and cooling solution more affordable. With the support of government-led initiatives like these, the adoption of heat pump technology is poised to accelerate, leading to a cleaner and more energy-efficient future for homes in the U.S. and around the world.


Useful Resources:

Internal Revenue Service (IRS)
(Inflation Reduction Act):

Find Policies & Incentives by State: