Heat Pump Rebates and Tax Credits

With the recent enactment of the Inflation Reduction Act in 2022, American households now have a unique opportunity to enhance their home's energy efficiency while tapping into significant financial benefits. This groundbreaking legislation is a game-changer, especially for those considering upgrading to heat pump HVAC systems.

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Key points:

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• The federal government is incentivizing energy-efficient upgrades through the purchase and installation of heat pumps

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• Homeowners can utilize rebates (upfront discounts) or tax credits (reduced tax bill) when they upgrade to a heat pump

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Benefits of heat pumps

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Heat pumps are at the forefront of energy-efficient home heating and cooling technologies. Unlike traditional HVAC systems, heat pumps transfer heat instead of generating it, resulting in significantly lower energy consumption. Think of them like an AC unit with a reversing valve. They pump heat inside the home in the winter, and out of the home in the summer.

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This efficiency not only reduces utility bills but also minimizes the carbon footprint of households, aligning with the renewable energy goals of the Inflation Reduction Act.

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What heat pump rebates are included in the Inflation Reduction Act?

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Rebates are essentially point-of-sale discounts for eligible households. Eligibility depends on annual household income and energy savings.

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The Inflation Reduction Act created two separate rebate programs:

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• The HOMES rebate program, which is not income based. States are still working to decide how they will go about this program, and there are two pathways: measured savings and modeled savings. Reach out to Currents to learn more.

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• The HEEHRA rebate program, which is for low- to moderate-income households. Click the "Find My Savings" button to see if you qualify for rebates up to $14,000!

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Income-based rebates under the HEEHRA program could cover:

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• Up to 100% of the project costs for low-income households, up to $14,000. These are households who earn no more than 80% of the area median Income. Fill out the "Find My Savings" form to see how you qualify.

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• Up to 50% of the project costs for moderate-income households, up to $14,000. These are households who earn more than 80% and less than 150% of the area median Income. Fill out the "Find My Savings" form to see how you qualify.

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Heat pump rebate amounts:

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• $8,000 for an electric heat pump HVAC system

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• $1,750 for a heat pump water heater

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• $4,000 for an electric panel upgrade (if needed to support heat pump upgrades)

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• $2,500 for an electric wiring upgrades (if needed to support heat pump upgrades)

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Reminder: This all depends on your income and location

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How to get heat pump rebates

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States will oversee the programs and applications for the new heat pump rebates. Right now, states are setting up their programs—so federal rebates will likely not be available until 2024.

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You could get an energy rebate:

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• At the time of purchase
• At the time of installation, or
• Post-purchase once your rebate application has been processed

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When you work with Currents, we'll handle the complicated incentives applications and verify your eligibility. Remember that rebates are not credits you receive at the end of the year, they are discounts when you get a quote from a vetted contractor or in a retail store like Home Depot.

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If you have any questions, fill out our Savings Form and we'll simplify how to do all this: homecurrents.com/incentives

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What heat pump tax credits are included in the Inflation Reduction Act?

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HVAC system heat pump tax credits

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• 2023 through 2032: 30% of your project costs, up to $2,000, with an additional $600 tax credit for electric panel upgrades (if needed to support heat pump installation)

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Heat pump water heater tax credits

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• 2023 through 2032: 30% of your project costs; up to $2,000, with an additional $600 tax credit for electric panel upgrades (if needed to support heat pump installation)

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The annual tax credit is capped at $2,000. Remember that tax credits reduce your tax liability dollar-for-dollar. These are not income-based like the rebate programs, but do require that you have income at all to give you credits.

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The actual heat pump credit: 25C tax form

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To qualify for the 2023 heat pump tax credit, you need to know two things:

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1. What type of heat pump HVAC system (ducted or non-ducted) you plan to install, and
2. If the heat pump HVAC system you are looking to purchase is eligible for the tax credit.

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What heat pump HVAC systems qualify?

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Heat pump eligibility for the tax credit (for HVAC systems specifically, heat pump water heaters don’t apply here as of the date of this writing) is tied to an industry efficiency ranking standard for technologies known as CEE tiers.

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The CEE tiers are energy performance ratings developed by the Consortium for Energy Efficiency that appliance manufacturers can voluntarily choose to meet.

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CEE adopted new tiers for 2023 on November 18, 2022, and the heat pump industry is working hard to identify which products meet the new eligibility criteria.

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How do you get the heat pump tax credit?

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First, you’ll need to owe at least $2,000 in taxes to get the credit.

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And to be eligible for the tax credit, you’ll need to make sure to report your heat pump home energy upgrades and provide whatever documentation is needed to prove your purchase at the end of the tax year. This means working with your contractor to get an itemized invoice or receipt.

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Once you have the heat pump receipt, you can fill our IRS Form 5695 to claim the credit. Soon you'll be able to sell that credit to Currents for cash on the spot, rather than waiting till April when you file your taxes.

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When you work with Currents, we'll handle the complicated incentives applications and verify your eligibility. If you have any questions, fill out our Savings Form and we'll simplify how to do all this: homecurrents.com/incentives