Heat Pump Rebates and Tax Credits

Federal Incentives in 2026

The federal incentive landscape for heat pumps shifted significantly in 2026. Understanding what is still available and what has expired prevents disappointment and helps you plan your installation budget accurately.

25C Energy Efficient Home Improvement Credit (Expired)

The Section 25C tax credit provided a 30% credit up to $2,000 for qualifying air-source heat pump installations. This credit expired on December 31, 2025, and is no longer available for installations completed in 2026 or later. If you installed a heat pump in 2025 but have not yet filed your taxes, you can still claim the credit on your 2025 return.

25D Geothermal Tax Credit (Active Through 2032)

The Section 25D Residential Clean Energy Credit provides a 30% tax credit on the full installed cost of a geothermal heat pump system, with no maximum cap. This credit applies to equipment, ground loop installation, drilling, piping, labor, and all related installation costs. On a $35,000 geothermal installation, the credit is $10,500.

The credit is available at 30% through 2032, then steps down to 26% in 2033 and 22% in 2034. It is a nonrefundable tax credit, meaning it reduces your federal income tax liability dollar-for-dollar but cannot generate a refund beyond what you owe. If the credit exceeds your tax liability for the year, you can carry the unused portion forward to future tax years.

To qualify, the geothermal system must meet ENERGY STAR requirements and be installed in your primary or secondary residence. Rental properties do not qualify for the residential credit but may qualify for business energy credits under different provisions.

Inflation Reduction Act Rebate Programs

The Inflation Reduction Act (IRA) of 2022 allocated $8.8 billion for state-administered rebate programs through two distinct programs: the Home Efficiency Rebates (HOMES) program and the High-Efficiency Electric Home Rebate Act (HEEHRA). These programs are administered by each state's energy office and provide point-of-sale rebates, meaning the discount is applied at the time of purchase rather than claimed on your tax return.

HEEHRA (High-Efficiency Electric Home Rebate Act)

HEEHRA provides the most generous heat pump rebates. The maximum rebate for a heat pump HVAC system is $8,000. Eligibility is based on household income relative to your area median income (AMI).

Households earning less than 80% of AMI qualify for rebates covering up to 100% of the project cost, up to the $8,000 cap. Households earning between 80% and 150% of AMI qualify for rebates covering up to 50% of the project cost, up to $4,000. Households earning above 150% of AMI do not qualify for HEEHRA rebates.

The rebate applies to the installed cost of the heat pump system, including equipment and labor. It is available for air-source, ductless mini-split, and geothermal heat pump installations. The rebate can be combined with the geothermal tax credit for geothermal installations, which can result in total savings exceeding 50% of the project cost for qualifying households.

Each state sets its own application process, qualifying equipment lists, and participating contractor requirements. Some states launched their HEEHRA programs in 2024 or 2025, while others rolled out in 2026. Check your state energy office website for current availability and application procedures.

HOMES (Home Efficiency Rebates)

The HOMES program provides rebates based on measured or modeled energy savings from whole-home efficiency improvements. Heat pump installations that reduce whole-home energy use by 20% or more qualify for rebates of $2,000 to $4,000, with higher amounts for low-income households (up to $8,000). This program is designed to incentivize comprehensive energy upgrades rather than individual equipment replacements.

State-Level Incentive Programs

Many states operate their own heat pump incentive programs in addition to the federal IRA rebates. These state programs can often be stacked with IRA rebates, creating substantial combined savings.

Massachusetts (Mass Save): Offers up to $10,000 for whole-home heat pump installations. This is among the most generous state programs in the country. The Mass Save program is funded by utility ratepayers and administered through the state's utilities.

Maine (Efficiency Maine): Provides $2,000 to $4,000 for qualifying heat pump installations, with higher amounts for income-eligible households. Maine has one of the highest heat pump adoption rates in the nation, driven partly by these incentives.

New York (NYSERDA): Offers $1,000 to $4,000 through the NYS Clean Heat program. Additional incentives are available for low-to-moderate income households through the EmPower+ program.

Colorado: Xcel Energy offers $2,000 to $4,000 for cold-climate heat pump installations. The state also has income-qualified weatherization programs that include free or reduced-cost heat pump installations for eligible households.

California (TECH Clean California): Provides rebates up to $5,000, with higher amounts for homes switching from gas heating. California's program focuses on reducing residential natural gas consumption as part of the state's climate goals.

Vermont (Efficiency Vermont): Offers $1,000 to $3,000 for cold-climate heat pumps. Vermont's program has been running since 2017 and has helped the state achieve one of the highest per-capita heat pump installation rates in the country.

Utility Rebate Programs

Individual utility companies often offer their own rebates independent of state and federal programs. These utility rebates typically range from $300 to $2,000 and are available to all customers regardless of income. Common requirements include purchasing an ENERGY STAR certified heat pump, using a licensed contractor, and obtaining a permit.

Utility rebates are funded by the utility's demand-side management budget, which is approved by the state public utilities commission. Electric utilities in particular incentivize heat pump adoption because it increases electricity sales (their core product) while reducing peak demand through the efficiency of heat pump technology compared to electric resistance heating.

To find utility rebates in your area, check your utility's website for "rebates" or "energy efficiency programs," search the DSIRE (Database of State Incentives for Renewables and Efficiency) website, or ask your HVAC contractor, who should be familiar with available incentives in your service territory.

How to Stack Multiple Incentives

In most cases, you can combine multiple incentive programs to maximize your savings. The general stacking rules are as follows.

Federal tax credits and IRA rebates can be combined. For geothermal installations, you can claim the 30% tax credit on the full installed cost and also receive the IRA rebate, though some states require the rebate to reduce the cost basis before calculating the tax credit.

State incentives and IRA rebates can usually be combined, though some states apply both to the same cost basis while others require sequential application. Check your state's specific rules.

Utility rebates stack with all other programs in most cases. They are typically processed independently of state and federal programs.

The total combined incentives cannot exceed the installed cost of the system. If your incentives add up to more than you paid, some programs will reduce their contribution accordingly.

How to Claim Your Incentives

For the geothermal tax credit, file IRS Form 5695 (Residential Energy Credits) with your federal tax return. Keep all receipts, the manufacturer's certification statement, and the ENERGY STAR label for your records.

For IRA rebates, the application process varies by state. Most states process these as point-of-sale discounts through participating contractors, meaning the rebate is deducted from your invoice at the time of installation. Some states use a post-purchase rebate application that you file after the work is complete.

For state and utility rebates, apply through the specific program's process. Many require pre-approval before installation begins, so check requirements before scheduling your contractor.