Is there a federal tax credit for installing a heat pump?

Yes, there is a federal tax credit for installing a heat pump under Inflation Reduction Act of 2022 that extends through 2032, offering significant savings. Federal tax credit under Section 25C Energy Efficient Home Improvement Credit provides 30 percent of cost up to 2,000 dollars per year for qualified heat pumps that meet highest efficiency tier, including Lennox XP20 and XP25, Trane XV20i, and Carrier Infinity 20, that meet 15.2 SEER2 and 8.1 HSPF2 and 9 EER2 requirements as of 2023 standards. For example, if you install Lennox XP20 3-ton at 9,000 dollars installed, you can claim 2,000 dollars tax credit on federal taxes, reducing net cost to 7,000 dollars. There is also 25D credit for geothermal heat pumps at 30 percent with no cap. Additionally, many states and utilities offer rebates of 500 to 2,000 dollars extra, such as Massachusetts Mass Save at 1,000 to 2,000 dollars, California TECH Clean at 1,000 to 3,000 dollars, and utility rebates from Duke Energy and ConEd at 300 to 800 dollars. To qualify, heat pump must be Energy Star certified and installed in primary residence, and you must file IRS Form 5695. Heat pump must be new, not used. Credit is non-refundable tax credit that reduces taxes owed. For low-income households, High-Efficiency Electric Home Rebate Program offers point-of-sale rebates up to 8,000 dollars for heat pumps. Check energystar.gov for qualified models.