Federal heat pump tax credits

The 25C Energy Efficient Home Improvement Tax Credit makes it more affordable for Americans to install a heat pump and complete other upgrades to improve home energy efficiency.

View other eligible projects under this tax credit:

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Disclaimer: The information presented here is for educational purposes only. It is not intended to provide specific tax guidance. For questions regarding your individual tax situation, we suggest consulting with your tax advisor.

Tax Credit

Up to $2,000

Available now

What is the heat pump tax credit?

The federal government recently passed a law that offers all households who pay federal income taxes up to a $2,000 credit for the installation of a qualifying heat pump.

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The 25C Energy Efficient Home Improvement Tax Credit provides a tax credit for eligible heat pumps up to 30% of project costs, capped at $2,000. 

The most challenging part of using this tax credit is figuring out if your heat pump qualifies. The appliance efficiency rules are not straightforward, and finding a good list of qualifying appliances is difficult. But don’t worry — we’ll explain how you can determine if you’re eligible for the heat pump tax credit, which heat pumps qualify, and how to use the tax credit. 

Heat pumps are just one of the home improvements that may qualify for the 25C Energy Efficient Home Improvement Credit. Projects like energy-efficient doors, insulation, and heat pump water heaters may qualify as well.

Project Type:Electrical components testing this is espagnolHow much funding can you receive from 25C for qualifying projects?:

Up to 30 percent, generally capped at $600 per year, for the items listed below:

  • Panelboards
  • Sub-panelboards
  • Branch circuits
  • Feeders
Project Type:Heat pumps and heat pump water heaters How much funding can you receive from 25C for qualifying projects?:

Up to 30 percent, capped at $2,000 per year for qualified:

  • Electric heat pumps
  • Electric heat pump water heaters
Project Type:Weatherization (insulation, air sealing, and ventilation)How much funding can you receive from 25C for qualifying projects?:

Up to 30 percent, capped at the following amounts for each type of project:

  • Insulation and air sealing: $1,200
  • Exterior doors: $250 per door, $500 total
  • Exterior windows and skylights: $600

All weatherization projects are combined with electrical panel upgrades for a total project cap of $1,200 per year.

Project Type:Home energy auditHow much funding can you receive from 25C for qualifying projects?:Up to $150. Home energy audits must be performed by a certified home energy auditor, and include a full home inspection and report to qualify.

Source: IRS

The 25C Energy Efficient Home Improvement Credit is limited to $2,000 per year for heat pump water heater installations, and there is a $3,200 yearly cap for all 25C tax credits combined. 

The good news is that there’s no lifetime cap, so you can continue to make efficiency upgrades year after year and claim credits for each year’s qualifying home improvements. 

If you’re interested in upgrading to a heat pump and would like to claim the 25C tax credit, talk to your contractor before you start the project. A contractor can help you understand whether installing a qualifying heat pump makes sense for your home and, if it does, they can assist you in meeting the requirements to use the tax credit later.

Tax credit limitations

The 25C Heat Pump tax credit may cover up to 30% of your heat pump project costs, capped at $2,000. 

Generally, you must subtract any price adjustments from the cost of the item. This can mean rebates, utility subsidies, financial incentives, and anything else that lowers the price point. This part can get a little tricky, so be sure to check the frequently asked questions about energy efficient home improvements and residential clean energy property credits for more information.

The 25C tax credit is “non-refundable,” which means that you can't get back more than you pay in federal income taxes. For example, if 30% of your project’s cost hits the $2,000 cap, but you only owe $1,000 in federal income taxes that year, you would receive a $1,000 credit.

Homeowners and renters making upgrades to their existing home

Homeowners can use this tax credit for heat pump water heater projects at homes that are already built. Homeowners can use this tax credit for primary and secondary homes.

Renters are also eligible to use this tax credit. 

For more information, see Frequently asked questions about energy efficient home improvements and residential clean energy property credits.

To learn about credits for new homes, see Section 45L New Energy Efficient Home Credit, which offers incentives for Zero Energy Ready homes.

No income requirements 

There are no income limitations for the 25C Tax Credit — but like nearly all federal tax credits, you can only use it if you pay federal income taxes, and the amount you can receive is limited by the amount of federal income tax you pay in a year.

Determining machine eligibility is the most complicated part of using the heat pump tax credit. Before shopping around, confirm with your contractor that a heat pump is the right choice for you. If it is, confirm with your contractor whether a qualifying heat pump makes sense for your home. 

The 25C tax credit is designed to encourage Americans to purchase high-efficiency equipment. Specifically, eligible heat pumps must meet or exceed the highest efficiency tier (not including any advanced tiers) established by the Consortium for Energy Efficiency (CEE). 

Efficiency standards and ratings can be difficult to evaluate yourself, so ask your contractor if your project qualifies for the 25C tax credit. Some manufacturer websites list tax credit-eligible equipment, as does the ENERGY STAR Product Finder. For the most comprehensive list of qualifying heat pump models, see CEE’s directory

One piece of good news: the IRS has said that to claim the credit, you can rely on the manufacturer’s written certification that a product qualifies. So if the manufacturer's website lists a certain heat pump as eligible for 25C, that’s all you need! Make sure you screenshot it and keep it for your records. 

For more on the efficiency requirements of other purchases, see this IRS FAQ.

Here are all the steps you need to take to save on your new heat pump. 

  1. Keep track of (or track down) the invoice from your contractor. 

  2. Fill out IRS Form 5695, Residential Energy Credits. For instructions on how to fill out the form, including more in-depth information about individual amounts you can claim, see the IRS’s Instructions for Form 5695.

  3. Submit the form along with your annual tax return. 

  4. Enjoy your lower tax bill or bigger refund with your qualifying high-efficiency heat pump!

You can claim the standard deduction to claim the 25C tax credit. You don't have to itemize.

You can only apply for and claim the 25C tax credit for energy upgrades in the year in which a project is completed. For example: if you purchased your equipment in late 2023 but had it installed in 2024, you have to file the tax credit with your 2024 tax return.

Discover other incentives with the incentives calculator!

There are other incentives that you may qualify for. Our incentive calculator will show you a personalized list of incentives.

Go to Incentive Calculator

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