Updated: February 2024

One of the main purposes of the recent Inflation Reduction Act was to invest in programs to help improve the energy efficiency of homes and businesses across the country. As part of this bill, the U.S. federal government has announced new tax credits and rebates for individuals who upgrade their homes with energy-efficient heat pumps for both space heating and water heating. Here is a full overview of everything you need to know about these tax credits and rebates and how to claim them.

2023 Heat Pump Tax Credit

The Inflation Reduction Act sets out a tax credit for new heat pump installations that will go into effect on January 1, 2023. Any homeowners who install a new heat pump on or after this date may be eligible for a tax credit of up to 30% of the total cost they paid to purchase and install the new unit. This credit is capped at a maximum of $2,000, which you can deduct when you file your taxes the following year. The credit is available for new heat pumps installed any time between the start of 2023 and the end of 2032.

In order to be eligible for the tax credit, the new heat pump must be rated in the Consortium for Energy Efficiency’s (CEE) highest efficiency tier. The cooling efficiency of heat pumps is measured in SEER (seasonal energy efficiency rating) while their heating efficiency is measured in HSPF (heating seasonal performance factor). To qualify for this CEE Advanced Tier and be eligible for the tax credit, the new unit must have a SEER of at least 18 and an HSPF of at least 10.

There is also an additional restriction that specifies that the new unit must improve your home’s energy efficiency, i.e. it must be more efficient than your old unit. If you’re upgrading from a furnace to a heat pump, then this restriction would not apply. However, if your home already has a heat pump that meets the criteria for the CEE Advanced Tier, replacing it with a new unit generally wouldn’t qualify. If your current heat pump doesn’t meet the criteria for this tier, then the new unit would still qualify for the tax credit as long as it meets the minimum SEER and HSPF requirements.

Non-business Energy Property Credit

The heat pump tax credits are part of a program known as the “non-business energy property credit.” In addition to covering electric heat pumps for space heating, tax credits are also available for new heat pump water heaters and biomass boilers that meet certain energy efficiency requirements. These credits are worth 30% of the total costs of these other units up to $2,000.

The program also sets out additional tax credits for other home energy-efficiency improvements, and these credits can be worth up to a total of $1,200 a year.

heat pumps

There is a $150 tax credit simply for anyone who has a home energy audit performed to determine ways to boost their energy efficiency. There is also a credit worth up to $600 a year to cover the costs of air sealing in order to reduce energy waste and improve efficiency.

The program also provides another credit worth up to $600 to cover the costs of any necessary electrical upgrades involved in improving your home’s energy efficiency. For instance, if you were to switch over from using a gas furnace, this credit would help cover the cost of upgrading your electrical system to accommodate a new electric heat pump. You would also be eligible for this credit if you switched from a gas water heater to a heat pump water heater.

Heat Pump Rebate Programs

There are also additional rebate programs that will be available for low- and middle-income families in some states. The U.S. Department of Energy has set aside $4.5 billion for this rebate program. However, while the program is federally funded, the rebates are administered by each state, and it is up to the individual states to decide whether they want to take part in this program. As a result, these rebates may not be available in all areas.

In states that do sign up for the program, homeowners who purchase a new heat pump for space heating or a water heater heat pump are eligible for a substantial rebate on the cost of purchasing the unit. Unlike the heat pump tax credit, this rebate program has no energy efficiency requirements. This means that any new heat pump would automatically qualify.

This program is referred to as the “high-efficiency electric home rebate,” and it entitles homeowners to a rebate worth up to $8,000 on the purchase of a new heat pump. One of the best parts about this program is that the rebate is available at the time of purchase, which means you won’t need to wait until you file your taxes to collect it.

In states that do sign up for this program, the rebates should start being available sometime in early to mid-2023. The program is set to continue until September 2031, but it may end sooner if the $4.5 billion in federal funding for the rebates runs out before that date.

To qualify for these rebates, homeowners must meet certain income requirements as compared to their state’s median income. Households with a total income that is less than 80% of the average household income in their state would qualify for 100% of the rebate up to $8,000 on the purchase of any new heat pump. If your household income is between 80% and 150% of the median income in your state, you would be eligible for 50% of the total rebate on your new heat pump or up to $4,000. Individuals whose total household income is more than 150% of the median income in their state are not eligible for any rebates.

This program also sets out rebates for the purchase of any new heat pump water heater. This rebate is worth up to $1,750, and it has the same income restrictions.

Why Heat Pumps Are Perfect for Oregon

The primary reason that the government is encouraging people to upgrade their HVAC systems with a heat pump is that these units are far more energy efficient than any other heating option. Heat pumps are generally always two to three times more efficient than a gas furnace, electric furnace, or any other type of electric heating.

They work especially well in milder coastal climates like that of Portland as they are at their most efficient when the outdoor temperature is above freezing. Heat pumps can continue to work quite well in below-freezing temperatures, but if the weather gets too cold, you may need to supplement the heat pump with an additional heating source.

heat pump repair

There is no difference between heat pumps and central AC units in terms of how much energy they use when cooling. If you were to compare a heat pump and a central AC unit that were the same size and had the same SEER rating, they would always use the same amount of energy and provide the same amount of cooling. Nonetheless, heat pumps still have a major advantage in that they are much less expensive compared to having to purchase and install separate heating and cooling units.

Another advantage is that heat pumps run entirely on electricity. This means that the units don’t produce any harmful carbon emissions unlike the gas furnaces used in a majority of U.S. homes. Installing a heat pump is one of the easiest ways to reduce your carbon footprint and also means that you will never have to worry about any potential issues with carbon monoxide like you would have to if you had a gas furnace.

At Specialty Heating & Cooling LLC, we are your local heat pump experts and can tell you everything you need to know about why they’re such a good choice. We carry a range of highly efficient Carrier heat pumps, and our team repairs and maintains all other brands and models as well. We also install, service, and repair furnaces, air conditioners, and ductless mini-splits for residential and commercial customers in Tigard and the Portland area, and our team offers a range of indoor air quality services as well. If you have any questions about the new tax credits or want to learn more about the benefits of upgrading to a heat pump, give us a call today.

Contact Specialty Heating & Cooling LLC today!

company icon