Disclaimer: This material is for informational purposes only. It is subject to change and should not be relied upon for tax advice. We always recommend speaking with a tax professional before making tax-related decisions.
Thinking about upgrading to an energy efficient heat pump HVAC system? There’s never been a better time to install a heat pump. Heat pumps currently qualify for a federal tax credit worth up to $2,000, significantly reducing your installation costs.
Total Home Performance has helped hundreds of homeowners take advantage of rebates and tax incentives for home upgrades, including heat pump installation. Keep reading to learn more about the heat pump tax credit and how you can use it to save on your HVAC replacement costs.
What Is the Tax Credit for Heat Pumps?
The heat pump tax credit was created as part of the Inflation Reduction Act, which aims to reduce energy costs for homeowners by making energy efficient home improvements more affordable. The tax credit allows homeowners to reduce their federal income taxes owed by 30% of the total cost of purchasing and installing a heat pump, with an annual limit of $2,000.
How Does the Heat Pump Tax Credit Work?
The heat pump tax credit reduces the amount you owe when you file your federal income taxes for the year you install your heat pump. If you owe $2,000 in taxes, for example, and receive the full $2,000 credit, you can apply your credit and eliminate your tax liability.
Qualification Requirements for the Heat Pump Tax Credit
What Types of Heat Pumps Qualify for the Federal Tax Credit?
The heat pump tax credit applies to air-source heat pump HVAC systems and water heaters, including:
- Ducted heat pumps, which connect to your home’s ductwork to provide central heating and air conditioning.
- Ductless heat pumps (mini splits), which operate without ductwork and can be used for whole-home or partial-home heating and air conditioning.
- Heat pump water heaters, which use heat pump technology for water heating.
Energy Efficiency Requirements for Heat Pump Tax Credit
To be eligible for the tax credit, your heat pump must meet certain energy efficiency standards, which vary depending on where you live. Your heat pump must meet certain standards for Seasonal Energy Efficiency Ratio (SEER2), Energy Efficiency Ratio (EER2), and Heating Seasonal Performance Factor (HSPF2). When you choose Total Home Performance to install your heat pump, you won’t have to worry about any of that. We’ll verify that your new heat pump meets all tax credit requirements before the installation so you don’t miss out on any savings.
What Costs are Covered by the Heat Pump Tax Credit?
The federal tax credit for heat pumps covers both the equipment and the installation labor. It does not cover any maintenance or repair costs—to claim the credit, you must install a new heat pump.
How to Claim the Heat Pump Tax Credit
It’s easy to claim the federal tax credit for heat pumps.
- Save all receipts associated with your installation. We will provide all the documentation you need!
- Complete IRS Form 5695, Residential Energy Credits Part II
- Submit Form 5695 when you file
Remember, you must claim the credit for the year the equipment was installed, not just purchased. To get your incentive as quickly as possible, install your heat pump now! If you install by the end of 2024, you can claim your tax credit when you file your 2024 taxes in early 2025. If you wait, you won’t see your incentive until early 2026.
Additional Incentives for Heat Pump Installation
In addition to the federal tax credit, you can save even more on a heat pump HVAC system with local utility rebates. You can take advantage of both rebates and tax credits for the same heat pump upgrade. The BGE Smart Energy Savers Program offers up to $10,000 in heat pump rebates to qualifying customers. Delmarva Power also offers rebates for energy efficiency upgrades, including heat pump installation, up to $10,000.
Total Home Performance is a participating contractor with both utility programs. We are a local rebate expert and will ensure you receive the maximum incentive possible when you install a new heat pump heating and cooling system for your home. With over 16 years of experience serving Maryland and Delaware homeowners, we are the trusted expert for heat pump installation.