Heat pump tax credit and rebates: Qualifications for federal incentives

The Inflation Reduction Act of 2022 increased financial incentives for energy-saving heat pumps. Here are the heat pumps that qualify.

If you’re thinking about installing a heat pump—whether it be a super-efficient heat pump HVAC system or a heat pump water heater—you’re in luck.

It’s an excellent time in history for Americans who want to make their homes more comfortable and energy efficient.

In August 2022, the Inflation Reduction Act was passed. And within it contained increased tax credits, rebates, and financial incentives for home energy upgrades… including heat pump appliances.

But before you dive in, here’s something you need to know: Depending on where you live, you could get a super-efficient electric heat pump HVAC system or water heater—along with any eligible rebates you might qualify for and an energy-savings guarantee—at no upfront cost. Tap here to see if your home qualifies.

Table of contents:

Key points:

The federal income 25c tax credit for heat pump HVAC and water heater upgrades increase starting in 2023, but to be eligible for the credit you have to install a heat pump that qualifies.
On November 18, 2022, the Consortium for Energy Efficiency (CEE) announced its updated appliance efficiency rating (formally called the CEE tiers) determining which heat pump HVAC systems will qualify for the new federal tax credits starting in 2023. We have an easy-to-understand breakdown below.
In addition to new heat pump tax credits and rebates, you may be able to get a high-performance heat pump HVAC system or heat pump water heater installed at no upfront cost if your house qualifies to work with Sealed. You’ll pay for the work done in a way that works best for you and your budget. Discover how.

heat pump compressor installed outside on exterior of home

How much is the heat pump tax credit? Quick cheat sheet

HVAC heat pump tax credit 2022: Up to $300
HVAC heat pump tax credit 2023: 30% of your project costs; up to $2000
Heat pump water heater tax credit 2022: Up to $300
Heat pump water heater tax credit 2023: 30% of your project costs; up to $2000

If you installed a qualifying heat pump HVAC system or water heater in 2022 or earlier, you may be eligible for a tax credit of up to $300.

Beginning in 2023, you could be eligible for a tax credit of up to $2,000 for qualifying heat pumps and heat pump water heaters under the new tax guidelines included in the Inflation Reduction Act. This annual credit is capped at $2,000 for upgrades installed in 2023.

To learn more about why heat pumps are such a smart energy-efficient home investment, check out our Guide to Whole-House Heat Pumps and our Heat Pump Water Heater Guide.

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

In addition to tax credits, the new heat pump incentives under the Inflation Reduction Act will be based on a variety of factors, including annual household income and program type.

We’ll talk more about this below, but here’s some high-level info you need first.

How much is the federal heat pump rebate? Quick cheat sheet

HEEHRA federal heat pump water heater rebate 2023: Up to $1750
HEEHRA federal HVAC heat pump rebate 2023: Up to $8000

The High-Efficiency Electric Home Rebate Act (HEEHRA) program is part of the Inflation Reduction Act. And the home electrification rebates—like for heat pump HVAC or heat pump water heaters—that are a part of this program are based on your household income.

Home energy upgrades under the HEEHRA program could cover:

Up to 100% of the project costs for low-income households. These are households who earn no more than 80% of the Area Median Income.
Up to 50% of the project costs for moderate-income households. These are households who earn more than 80 and less than 150% of the Area Median Income.

To estimate if you fit these guidelines, take a quick peek at the Fannie Mae Area Median Income Lookup Tool, and then pop right back here for more info on heat pump rebates! However, your State Energy Office (SEO) should have more detailed final guidelines coming out in 2023.

We cannot stress this enough: Check with your State Energy Office (SEO) before you make your appliance purchase if you’re counting on using a rebate.

It’s not quite clear yet if the HEEHRA program will offer rebates retroactively for 2023 home energy upgrades that qualify.

HVAC heat pump rebates under the Inflation Reduction Act HEEHRA program

Under the High-Efficiency Electric Home Rebate Act (HEEHRA) program, low- to moderate-income households (as defined by your state) could be eligible for up to:

$8000 for an electric heat pump
$4000 for an electric panel upgrade (if needed to support heat pump upgrades)
$2500 for an electric wiring upgrades (if needed to support heat pump upgrades)

Under this program, your heat pump upgrades need to be an ENERGY STAR-certified appliance. Easy! Just look for the ENERGY STAR certification before you decide on your heat pump.

Check out our Inflation Reduction Act Home Improvement guide for in-depth, easy-to-understand guidance about the new home energy upgrade tax credits and rebates. Or read the IRA HOMES rebate program guide to learn about non-income-based new federal incentives.

Heat pump water heater rebates under the Inflation Reduction Act HEEHRA program

Under the High-Efficiency Electric Home Rebate Act (HEEHRA) program, low to moderate income households (as defined by your state), could be eligible for up to:

$1750 for an electric heat pump water heater
$4000 for an electric panel upgrade (if needed to support efficiency upgrades)
$2500 for an electric wiring upgrades (if needed to support efficiency upgrades)

Same here: Your heat pump water heater upgrades need to be an ENERGY STAR-certified appliance. Remember, all you need to do is just look for the ENERGY STAR certification before you decide on your heat pump (1).

Ultimately, heat pump HVAC systems and heat pump water heaters are amazing at cutting energy waste and making your home healthier and more comfortable.

Even if you don’t qualify for the HEEHRA program rebates, there are other ways to save on your heat pump upgrades.

In addition to federal and state home electrification incentives, utility rebate options and manufacturer rebates are often available for heat pump appliances.

Bonus: There are also financial incentives for insulation, air sealing, and weatherization upgrades under the new laws. These improvements can extend the lifespan of your heat pump upgrade, optimize its efficiency, and improve your home’s comfort.

Learn more about how to get weatherization upgrades at no upfront cost here.

According to the EIA, 51% of your home’s energy use is for heating and cooling alone. Heat pumps are pros at cutting energy waste!

What heat pumps qualify for federal tax credits?

Okay, now that we’ve talked through new rebates that are available and had a high-level look at the 2022 and 2023 heat pump tax credits, let’s dig into the details… more specifically, the HVAC heat pump systems that qualify for federal tax credits.

Heat pump HVAC models that qualify for the 25C Energy Efficiency Home Improvement tax credit or the new Inflation Reduction Act incentives are different depending on the date of your heat pump installation.

Tap below to jump ahead:

You could get a heat pump at no upfront cost. Learn how.

2022 Heat pump tax credits and incentives

For heat pumps HVAC systems installed before December 31, 2022, heat pumps that are ENERGY STAR-certified are eligible for the $300 2022 25C Energy Efficiency Home Improvement tax credit (2).

So looking for the ENERGY STAR rating keeps things pretty simple!

Check to see if your heat pump appliance is ENERGY STAR certified—and check with your tax pro—and you should be good to go.

New Inflation Reduction Act heat pump tax credits: 2023 through 2032

Starting January 1, 2023, you may be eligible for the new and improved 25C Energy Efficiency Home Improvement tax credit, and it’s a $2,000 federal income tax credit for heat pump HVAC systems.

To qualify for the $2,000 heat pump tax credit, you need to know two things:

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

Get a heat pump at no upfront cost if your house qualifies.

What heat pump HVAC systems qualify?

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.

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

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.

The good news is that when you install a CEE-eligible heat pump, you’ll benefit from exceptional energy efficiency and performance.

Who sets the CEE Tiers—and how?

The Inflation Reduction Act gives the Consortium for Energy Efficiency (CEE) the responsibility of developing the guidelines for what is a ”tax credit eligible” heat pump.

The CEE is a professional group of energy efficiency program administrators and experts—think the leaders of your local electric or gas utility—who work together to advocate for energy efficiency policies and programs as well as advancement in home appliance technology.

One of the programs this group oversees is the “CEE tier” list—mentioned above—which ranks products based on how efficient they are.

Different types of appliances have different numbers of tier ratings, and the same is true for heat pumps.

This means to qualify for a heat pump tax credit for a heat pump HVAC system specifically, you need to purchase and install either:

A ducted heat pump that meets CEE’s Tier 1 requirements for your state and region
A ductless heat pump that meets CEE’s Tier 2 requirements for your state and region

Learn the difference between the two types in our Ultimate Guide to Heat Pumps.

Map of USA with color coding for CEE tier regions for heat pump tax credit — CEE tier regions for heat pumps. Data source: The CEE Res HVAC Initiative 2023

The CEE also has an advanced tier, but it’s reserved for the next generation of heat pumps.

If you want to purchase and install one, that’s great! But you don’t have to in order to qualify for the 25C tax credit.

You could cut up to 50% of your energy use when getting high-performance insulation, professional air sealing, and heat pump HVAC upgrades with Sealed. Learn how.

How do you get the heat pump tax credits—or heat pump rebates?

For this question, you should talk to a tax professional. In general, when thinking about what the heat pump tax credit will mean for your household, you’ll need to know if you have a tax liability to reduce.

All tax credits—including tax credits for rooftop solar and electric vehicle upgrades—are a dollar-for-dollar reduction of the income tax you owe each year.

This means to maximize the value of your heat pump tax credit, you’ll need to owe at least $2,000 in taxes.

To be eligible for the tax credit, at the end of the tax year, you’ll need to make sure to report your heat pump home energy upgrades and provide whatever documentation is needed to prove your purchase.

If you work with Sealed for your home energy upgrades, we’ll make sure you have all the right paperwork for this step.

Remember, seek the guidance of a tax or financial advisor if you have any questions. (We’re home energy experts, not financial advisors!)

81% say their home comfort has improved by replacing their fossil fuel heaters with heat pumps.
Cool Products 2022 consumer analysis

heat pump outdoor compressor unit on green ivy wall: should you choose a geothermal or air source heat pump?

How to apply for heat pump tax credits or heat pump rebates

To apply for the heat pump tax credit, you’ll simply need to indicate you purchased and installed a qualifying heat pump HVAC system or heat pump water heater within the tax year and provide required information.

Check with a local tax pro in your area to determine what additional information you may need.

What about heat pump rebates under the Inflation Reduction Act of 2022?

States will oversee the programs and applications for the new heat pump rebates. These rebates are effective in 2023, but truth be told, these programs may not rollout in full until the end of 2023.

But let’s pause for one moment: Energy rebates are different from tax credits.

With rebates, you could get an energy rebate at the time of purchase, at the time of installation, or post-purchase once your rebate application has been processed.

(Rebates usually require that you submit a completed application before you’ll receive the financial incentive. The process depends on the specific rebate program you’re using and how your state or utility processes the program.)

They’re not credits received on your annual tax return.

Because states are developing new energy rebate programs and processes, being able to apply and obtain a rebate could take some time. Read IRA rebates and credits: 4 Hidden costs of waiting to learn more.

Remember: Check with your state energy office or local utility company to discover energy rebates that are currently available to you before you make your home energy upgrades.

If the HEEHRA rebates aren’t available in your area yet, and If you need a new water heater like yesterday, you may be able to get a heat pump water heater rebate through your utility company or a local program.

And if your heating or cooling system is about to give out?

You shouldn’t wait to upgrade to a heat pump. Same thing goes here: Check with your local utility or State Energy Office to see what rebate programs for heat pump upgrades may be eligible for you today.

Talk to Sealed. If you’re eligible to work with Sealed, we can help you make sure you’re getting the energy upgrade incentives you may be eligible for.

Get a heat pump at no upfront cost—along with incentives you may qualify for

There’s a lot to consider when selecting and installing home energy upgrades (like high-performance heat pump appliances and what incentives are available!).

And there’s a lot to project-manage, too.

But when you work with Sealed, we make the process hassle-free.

If your house is eligible, you can get an energy-efficient heat pump HVAC system or water heater—or both!—at no upfront cost with flexible payment options. (Or pay cash, if that’s your thing!)

Plus, if your house needs it, you can get weatherization upgrades to optimize your heat pump and make your home healthier and more comfortable year round.

And at Sealed, we stay accountable to the results with our energy-savings guarantee, too. If you don’t save energy, we take the hit.

(No, it’s not too good to be true. Learn more here.)

Take our quick questionnaire to see if your house qualifies.

Qualify now

Discover more amazing heat pump appliance benefits. For more reading, check out:

If I don’t have to spend any extra money to get a huge improvement to my home, it’s just a no brainer at that point.
Scott. R, Sealed customer

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