Through the Inflation Reduction Act, you can get up to $2,600 in tax credits when installing or replacing a new heat pump system.*
How the Inflation Reduction Act Delivers Big Savings on Heat Pump Replacement Costs
Let’s face it, spending money on replacing old and failing HVAC equipment is not most people’s favorite home improvement expense. However, if your heat pump is going bad, or has already failed, it’s a necessary one. Thankfully, there are programs in place to help ease the financial impact of heat pump replacement costs. The Inflation Reduction Act includes the Energy-Efficient Home Improvement Tax Credit (25C), where you can utilize heat pump tax credits of up to $2,600* for the installation of eligible, energy efficient heat pumps. Here’s what you need to know to take advantage of these savings.
What Is the Inflation Reduction Act?
The Inflation Reduction Act is the US government’s attempt to reduce inflation through different incentives and programs. When it comes to your heat pump system, it offers tax incentives and discounts, up to $2,600* in savings, for purchasing and setting up high efficiency systems.
What Is the Energy-Efficient Home Improvement Tax Credit (25C)?
The Energy-Efficient Home Improvement Tax Credit is part of the Inflation Reduction Act. This act is what allows homeowners to achieve such high amounts of savings when upgrading or replacing their heat pump system. It’s part of a large group of incentives all aimed at electrification, a push for more electric appliances and systems within your home. A large portion is aimed at the electrification of heat, i.e., switching from boilers and furnaces to high efficiency heat pump systems.
Energy Efficiency Heat Pump Tax Credits
The credits came into effect on Jan 1, 2023 and will remain in place until Dec 31, 2032. The credit equals 30% of certain qualified expenses, including:
- Qualified energy efficiency improvements installed during the year
- Residential energy property expenses
- Home energy audits
Specifically, the improvement credits allow for up to $2,000 per year for qualified heat pumps and up to $600 per year for efficient heating equipment.
What Homes Qualify?
Not every home is eligible. For the energy efficient home improvement credit to qualify, the following criteria must be met:
- The heat pump installation must be done on your primary home, which is the home where you live most of the time. You cannot claim the credit as a landlord for a rental property.
- The home must be located in the US.
- It must be your existing home that you improve or make an addition to. It cannot be a new home build.
What Expenses Qualify?
For your heat pump installation to be eligible for the $2,000 tax credit, it must have a thermal efficiency rating of at least 75%. The cost of labor for installation can also be included when calculating your rebate. Qualified improvements include:
- Electric or natural gas heat pumps
- Electric or natural gas heat pump water heaters
- Biomass stoves and boilers
Energy Efficiency Requirements
To be eligible for the 25C heat pump tax credit, your new system must meet specific energy efficiency requirements. Technically, the system must meet a thermal efficiency rating of at least 75%, but what does that mean? In short, thermal efficiency rating means how much energy your system takes in and how much it puts out. A higher thermal efficiency rating generally means that your system is more efficient. However, this thermal efficiency rating is not always easy to understand when shopping for a new system and can be expressed in other forms like SEER2 or AFUE ratings. We understand it and have a consultative process that helps to solve those issues.
How to get a Federal Tax Credit for Heat Pump Installation
The tax credit must be claimed for the same tax year when the system was installed (not purchased, but installed). While the basic answer about how to claim your tax credit is to file Form 5695, Residential Energy Credits Part II, with your tax return, the full answer can be more complicated. Before you purchase, you’ll want to consult a knowledgeable and trustworthy HVAC company. That’s why Casey Services has our easy 3 step process to help walk you through this.
1) Choose the right system for your home: We provide a free consultation that will help you sort through the many options to help you find a heat pump that not only meets the needs of your home but also qualifies for rebates and/or tax credits. Our understanding of pricing and technical HVAC insights can help you get the most for your money and ensure that you get a unit that fully qualifies for the rebates and/or tax credits.
2) Installing it right matters: We install the system following all manufacturer and local requirements and then test it to ensure that it’s operating at peak efficiency. That may sound obvious, but according to the Department of Energy, approximately 70-90% of heat pumps have at least one installation error. Why trust an investment this large to an HVAC company that will cut corners and not do the job right? Instead, you can trust that Casey Services will get it done right the first time.
Our track record speaks for itself. With more than 50 years of experience installing all kinds of high efficiency systems, Casey Services has one of the highest customer and manufacturer ratings in the area. Our NATE-Certified techs ensure that your system will be installed right the first time. We know from experience that our properly licensed and certified heat pump installations will:
- Require fewer repairs
- Prolong your system’s life
- Keep you compliant with warranties and insurance
- Keep you comfortable year round
3) Helping you navigate the rebate process: Lastly, we’ll submit the proper paperwork for rebates and credits where possible. We then give you an organized copy of your paperwork that you can use to file your tax returns and explore additional rebates and credits that we’re not permitted to submit on your behlaf.
The Casey Services 3 step process ensures that you get the right heat pump for your home and budget, will be properly installed, and lastly that you get the most rebates and tax credits possible.
These credits will be available for the next 9 years (Jan 1, 2023 – Dec 31, 2032). During that time, some of this information and even some of the numbers may change. In order to stay up to date on these changes, check back on our blog for any important updates.
Reach out to the pros at Casey Services today! We can help you by not only finding the right heat pump for your home but also by maximizing your savings through rebates and tax credits and energy savings.
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*Disclaimer: The information provided on this website is for general informational purposes only and is not intended to be legal or tax advice, nor to replace appropriate HVAC consultation from a licensed company. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is strictly at your own risk. Always consult with a qualified professional for appropriate licensed or legal or tax advice tailored to your situation. Casey Services HVAC Inc shall not be held liable for any loss or damage including without limitation, indirect or consequential loss or damage or in connection with, the use of this website. Last Updated: Nov 2, 2023.