Heat pumps are more than just popular in California—they’re quickly becoming the standard for home heating and cooling. High-efficiency heat pumps can reach 300% to 400% efficiency, which means they put out 3 to 4 times more energy than they consume. Thanks to their impressive energy efficiency, heat pumps are better for the environment and, in many cases, more affordable to operate than other heating systems.
Since they’re so energy efficient, heat pumps are eligible for tax incentives. You can receive up to $2,000 in federal tax credits when you install a heat pump HVAC system or a heat pump water heater.
Tax Credits 101: How They Work
Tax incentives can be confusing. There are several of them, including credits, deductions, and refunds, and they all follow different rules. A tax credit is a dollar-for-dollar reduction in the amount of income tax you owe. If you owe, for example, $2,000 in federal income tax, and you receive a $2,000 tax credit, the credit will bring your total down to $0.
What Is the Heat Pump Tax Credit?
While there is a federal tax credit for heat pumps, it’s not technically called the heat pump tax credit. The formal name is the Energy Efficient Home Improvement Credit (25C). It encompasses a variety of home performance and electrification upgrades, including heat pump HVAC systems (both ducted and ductless) and heat pump water heaters.
The maximum credit you can claim per year is:
- $2,000 for heat pump HVAC systems and heat pump water heaters
- $1,200 for eligible energy efficient home improvements
These can be combined, for a total of $3,200 per year. The best part about the Energy Efficient Home Improvement Credit is that you can claim it more than once. If you install a heat pump HVAC system this year, for example, you can claim $2,000 on your taxes and then install a heat pump water heater the following year and claim another $2,000 credit. While there are annual limits, the credit has no lifetime limit. You can claim the maximum annual credit every year that you make eligible improvements until 2033.
What Products Are Eligible for the Heat Pump Tax Credit?
Air-source heat pump HVAC systems and heat pump water heaters are eligible for the heat pump tax credit.
To qualify, the equipment must have a thermal efficiency rating of at least 75%.
Who Is Eligible for the Heat Pump Tax Credit?
Most taxpayers can receive the heat pump tax credit if they install qualifying equipment. To be eligible, you must:
- Pay federal income taxes in the United States
- Make improvements to your primary residence, located in the United States
- Make improvements to an existing home or addition to an existing home. New construction does not qualify.
Find a Heat Pump Installer Near You in California
The heat pump tax credit is available now! To claim the credit on your 2024 taxes, you must install your heat pump by December 31, 2024. The Clean Energy Connection can connect you with a reputable heat pump installer near you in California. We are a non-profit organization that’s committed to helping California meet its clean energy goals by connecting homeowners with reliable clean energy contractors, including heat pump companies. We vet every contractor listed in the directory and it is 100% free to use!
Save $2,000 on a heat pump HVAC system or water heater with the heat pump tax credit!