$2000 Heat Pump Tax Credit: How to Claim It

If you’re planning to install a heat pump in your home but are hesitant because of the cost, you can use a federal tax credit to reduce some of the costs. The heat pump tax credit is part of the Inflation Reduction Act (IRA) approved in August 2022. Eligible residents can receive a credit of up to $3,200 for heat pumps and other energy-saving installations.

Heat Pump Tax Credit: What is it?

In 2022, the IRS approved the Energy Efficient Home Improvement Credit, part of the Inflation Reduction Act. This credit allows homeowners to cover eligible expenses related to energy efficiency improvements from 2023 to 2032.

Qualifying homeowners can claim a deduction of up to 30% of the total project cost, up to $1,200 for home improvements, and up to $2,000 for a heat pump, biomass stove or boiler. This credit covers the cost of equipment, installation and labor.

Previously, the heat pump tax deduction was capped at $500 per lifetime, but the Inflation Reduction Act established a new limit each year. The heat pump tax credit is not a discount. This means homeowners must pay the full price of their heat pump up front and then claim the tax credit.

Depending on the type of heat pump you install, a heat pump tax credit may offset a significant portion of the cost. A low-cost heat pump system, including parts and installation, costs between $6,000 and $10,000, while a high-end system costs between $18,000 and $20,000.

What are the requirements?

Homeowners can claim the credit in the tax year in which they install a heat pump. For example, if you installed a heat pump in 2023, you can claim the heat pump tax credit in 2024 on your 2023 tax return.

To qualify for the heat pump tax credit, you must install a heat pump in your primary residence. Additionally, your residence must be located in the United States and must be in an existing property, not a new building.

The heat pump you plan to install must meet the highest energy efficiency requirements, including electric or natural gas with a thermal efficiency rating of at least 75%.

Heat pumps can be ducted or non-ducted and must meet different energy requirements depending on whether you live in the North or South. For example, if you live in the South, only ducted heat pumps with the ENERGY STAR label are eligible. If your pump is ductless, it must meet several other specifications in addition to the ENERGY STAR label.

If you live in the North, only ducted heat pumps with the ENERGY STAR Cold Climate label and EER2 > 10 are eligible for credit. For ductless, pumps that are ENERGY STAR Cold Climate certified must also meet a specific energy rating.

In addition to the energy-efficient home improvement credit, homeowners can also use the residential clean energy credit. However, this credit only applies to geothermal heat pumps.