Understanding Heat Pump Technology
Heat pumps work by transferring heat rather than generating it through combustion, making them significantly more efficient than traditional heating systems. Modern heat pumps can provide both heating and cooling, replacing separate furnace and air conditioning systems with a single integrated solution.
Air-source heat pumps are the most common residential type, extracting heat from outdoor air even in cold temperatures. Ground-source (geothermal) heat pumps use the stable temperature of the earth for even greater efficiency, though at higher installation costs. Heat pump water heaters apply the same technology to domestic hot water production.
Federal Tax Credits for Heat Pumps
The Inflation Reduction Act established significant tax credits for heat pump installations as part of the Energy Efficient Home Improvement Credit. As of 2026, homeowners can claim credits for qualifying heat pump systems:
- Air-source heat pumps: 30% of costs, up to $2,000 per year
- Heat pump water heaters: 30% of costs, up to $2,000 per year
- Geothermal heat pumps: 30% of costs with no annual cap (claimed under Residential Clean Energy Credit)
The annual $2,000 limit for air-source heat pumps and heat pump water heaters is separate from other efficiency credit limits, allowing homeowners to claim substantial total credits when combining multiple improvements.
HEEHRA Rebates
The High-Efficiency Electric Home Rebate Act (HEEHRA) provides point-of-sale rebates for electrification measures, with heat pumps as a primary focus. Unlike tax credits, HEEHRA rebates reduce the upfront purchase price, making heat pumps more accessible to households that may not have sufficient tax liability to benefit from credits.
HEEHRA rebate amounts vary based on household income:
- Low-income households (below 80% AMI): Up to 100% of costs, capped at $8,000 for heat pump HVAC and $1,750 for heat pump water heater
- Moderate-income households (80-150% AMI): Up to 50% of costs, with same caps
- Higher-income households (above 150% AMI): Not eligible for HEEHRA rebates
HEEHRA is administered by individual states, with program availability and specific terms varying by location. As of 2026, many states have launched their HEEHRA programs, though implementation timelines and details differ.
State and Utility Programs
Beyond federal incentives, many states and utilities offer additional heat pump rebates that can be combined with federal programs. State-level incentives vary significantly by location:
- California: TECH Clean California program provides rebates for heat pump HVAC and water heaters, with enhanced incentives in certain utility territories
- Massachusetts: Mass Save program offers substantial rebates for heat pump installations
- New York: NYSERDA provides incentives through various clean heating programs
- Many utilities: Offer their own rebate programs, often stackable with state and federal incentives
Qualifying Equipment
To qualify for federal and most state incentives, heat pumps must meet specific efficiency standards:
- Air-source heat pumps: Must meet or exceed ENERGY STAR requirements and applicable CEE tier levels
- Heat pump water heaters: Must meet ENERGY STAR specifications with minimum Uniform Energy Factor
- Geothermal heat pumps: Must meet ENERGY STAR requirements for the applicable configuration
Efficiency requirements may be updated periodically. Homeowners should verify current standards with their contractor or program administrator before making purchasing decisions.
Stacking Incentives
In many cases, federal tax credits can be combined with HEEHRA rebates, state incentives, and utility rebates. However, some programs reduce eligible costs based on other incentives received, and HEEHRA rebates may reduce the basis for calculating federal tax credits.
The optimal combination of incentives depends on individual circumstances including income level, tax liability, and available local programs. Working with qualified contractors familiar with available incentives helps ensure maximum benefit capture.
Getting Started
Understanding available incentives is an important step in evaluating heat pump adoption. Program terms and availability are subject to change, and specific eligibility requirements vary by program. Consultation with qualified HVAC contractors and tax professionals can help determine the best approach for your situation.