Your Guide to the Heat Pump Tax Credit & Rebates in 2023


When tax season rolls around, figuring out what tax credits you qualify for is crucial to saving more. 

In 2022, U.S. President Joe Biden signed the Inflation Reduction Act into law, which included various tax credits and rebates for homeowners investing in efficient and clean energy. One of this legislation’s most notable tax credits is the heat pump tax credit.

This article closely examines the Inflation Reduction Act to determine what the heat pump tax credit is and who qualifies for it. Plus, we discuss which types of heat pumps are eligible for the tax credit, as well as rebates to consider when filing your taxes.

Stay tuned to discover everything you need to know about the heat pump tax credit!

What is the Inflation Reduction Act? 

The Inflation Reduction Act is a broad and transformative law aiming to reduce inflation, invest in domestic energy production, and reduce carbon emissions.

First put into law in 2022, the Inflation Reduction Act has several key objectives, with one of the most prominent being the goal to reduce carbon emissions by roughly 40% by 2030. The Inflation Reduction Act also plans to invest $300 billion in deficit reduction and $369 billion in energy security and climate change programs over the next ten-year period. 

For the average U.S. homeowner, the Inflation Reduction Act provides a significant tax credit for residential clean energy investments, providing a 30% tax credit for the purchase and installation of:

  • Solar panels
  • Solar water heaters
  • Fuel cell property expenditures
  • Small wind turbines
  • Geothermal heat pumps
  • Battery storage systems

The amount of the tax credit that a homeowner can claim equates to a percentage of the total improvement expenses in the year of installation. For 2022 to 2032, a 30% tax credit is available — however, this tax credit will decrease to 26% in 2033 and 22% in 2034. 

What Does the Inflation Reduction Act Say About Heat Pumps? 

Heat pump purchases and installations are included within the Energy Efficient Home Improvement Credit detailed in the section above. Since heat pumps are a lower-cost home improvement compared to some of the other options, they tend to be a popular choice for homeowners seeking the tax credit. 

According to the White House’s official clean energy webpage:

“A heat pump provides both heating and cooling for homes, as a super-efficient alternative to furnaces and air conditioners. Installing a heat pump can save a family hundreds of dollars each year on energy bills. The Inflation Reduction Act includes tax credits and rebates that can cover up to 100% of the costs, depending on household eligibility.” 

The Energy Efficient Home Improvement Credit allows homeowners to claim up to $2,000 for heat pumps. The same amount can be claimed for heat pump water heaters and biomass stoves. 

An additional $1,200 can be claimed for the following improvements:

  • $150 for a home energy audit
  • $250 for a new exterior door ($500 total for all exterior doors)
  • $600 for new exterior windows and skylights
  • $1,200 for insulation
  • $600 for an upgraded electrical panel

This is a non-refundable tax credit, meaning you cannot get more back than what you owe in taxes. 

Understanding the Heat Pump Tax Credit

To claim the Energy Efficient Home Improvement Credit, you must have a main home located in the United States. Additionally, the property must have an existing home that you are making improvements to rather than a brand-new construction.

For heat pumps specifically, the heat pump must have a thermal efficiency rating of at least 75% to qualify for the tax credit. Qualified improvements include:

  • Electric or natural gas heat pumps
  • Electric or natural gas heat pump water heaters
  • Biomass stoves and boilers

Another important cost-saving resource to consider when installing a new heat pump is the High-Efficiency Electric Home Rebate Act, or HEEHRA for short. HEEHRA is a 10-year rebate program offering a 100% rebate up to $8,000 for energy-efficient home improvements like heat pumps. 

The 100% rebate applies to low-income households. Mid-income households can qualify for a 50% rebate, while high-income households can only qualify for the 30% tax credit. 

Additionally, you may qualify for state-specific rebates for installing a new heat pump into your home. 

Why You Should Install a Heat Pump in Your Home in 2023

Aside from the cost savings you can earn during tax season, heat pumps offer many advantages that make them a worthwhile investment for your home. 

Here are some of the top advantages of heat pumps to consider:

  • Energy Efficiency: Heat pumps are one of the most energy-efficient heating and cooling systems available. They can provide significant efficiency improvements by converting electricity to heat energy, as they don’t generate heat but transfer it from one place to another.
  • Lower Operating Costs: Because of their high efficiency, heat pumps can lead to lower energy bills compared to traditional heating and cooling systems. These cost savings can be substantial over time, making them a financially attractive option.
  • Dual-Functionality: Heat pumps serve as both heating and cooling systems, offering year-round comfort. They can efficiently heat your home in the winter and cool it in the summer, eliminating the need for separate heating and cooling systems.
  • Consistent and Comfortable Temperatures: Heat pumps provide a more consistent indoor temperature by gradually releasing warm or cool air, avoiding the sudden temperature fluctuations associated with some other systems.

It is important to note that the effectiveness of a heat pump depends on factors like climate, insulation, and the specific type and model of heat pump you choose. We highly recommend consulting with a professional HVAC technician to determine the most suitable heat pump system for your home and to ensure proper installation and maintenance.

Final Thoughts

The Inflation Reduction Act provides significant incentives for homeowners to make energy-efficient improvements to their home. Not only can these improvements benefit you during tax season but they can also help to lower your utility bills and create a more environmentally-friendly living space.To learn more about the Inflation Reduction Act and its various tax credits, visit the IRS webpage on Credits and Deductions Under the Inflation Reduction Act of 2022.

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