Does My Heat Pump Qualify for a Tax Credit?
Find out if your heat pump meets tax credit requirements, including efficiency standards, documentation needs, and potential factors that could affect eligibility.
Upgrading to an energy-efficient heat pump can lower utility bills and reduce a home’s carbon footprint. To encourage these improvements, the U.S. government offers tax credits to help offset installation costs. However, not all heat pumps qualify, and specific requirements must be met to claim the credit.
Qualifying Criteria
A heat pump must be installed in a primary residence within the United States to qualify for a federal tax credit. Rental properties are excluded, but landlords may be eligible for separate incentives. The credit applies only to existing homes, excluding new construction.
Both purchase and installation must occur within the same tax year. If a heat pump is bought in December but installed in January, the credit applies to the following year’s tax return. Only new systems qualify—used or refurbished units are ineligible.
The Inflation Reduction Act of 2022 expanded energy efficiency tax credits, allowing homeowners to claim 30% of the total cost, up to $2,000 per year. This credit resets annually, enabling homeowners to claim it again for future qualifying improvements.
Equipment Standards
Not all heat pumps meet the efficiency standards required for a tax credit. The U.S. Department of Energy (DOE) and the Environmental Protection Agency (EPA) set benchmarks to ensure only high-efficiency systems qualify.
Efficiency is measured using the Seasonal Energy Efficiency Ratio (SEER2) and the Heating Seasonal Performance Factor (HSPF2). As of 2023, air-source heat pumps must have a SEER2 rating of at least 15.2 and an HSPF2 of 7.8 or higher. Cold-climate models, designed for harsh winters, must also meet a coefficient of performance (COP) of at least 1.75 at 5°F.
Geothermal heat pumps follow different requirements. These systems, which use underground thermal energy, must meet Energy Star certification guidelines. Unlike air-source models, geothermal units qualify for a 30% tax credit with no cap due to their higher efficiency and environmental benefits.
Required Documentation
Homeowners must keep records proving eligibility, as the IRS may request proof of purchase, installation, and compliance with efficiency standards. A detailed invoice from the contractor or retailer should include the purchase date, installation costs, model number, and efficiency ratings.
Manufacturers provide certification statements confirming that a heat pump meets federal standards. These statements, available on manufacturer websites or included with the product, should be kept with tax records. While not required with a tax return, they serve as essential backup in case of an audit.
Utility rebates or state incentives can affect tax filings. If a rebate was received, it may need to be deducted from the total cost when calculating the federal tax credit. Homeowners should review IRS guidelines or consult a tax professional to determine how rebates impact eligibility. Keeping records of all financial incentives ensures accurate filing.
Filing Process
Homeowners claim the tax credit using IRS Form 5695, which must be included with the federal tax return. The form requires entering the total cost of the heat pump, including both equipment and installation expenses. The credit is nonrefundable, meaning it can reduce tax liability to zero but cannot generate a refund. Any unused portion cannot be carried forward.
Installation labor costs are included in the credit calculation, but unrelated expenses—such as electrical upgrades not directly required for the heat pump—do not qualify. If multiple energy-efficient improvements are made in the same year, each must be itemized separately on Form 5695 to ensure the total claimed remains within the allowable limits.
Instances That May Void Eligibility
Certain circumstances can disqualify a homeowner from claiming the tax credit.
A heat pump installed in a secondary residence, such as a vacation home, does not qualify. The IRS restricts eligibility to primary residences, meaning the property must be the taxpayer’s main home for most of the year.
If a heat pump is purchased but not installed within the same tax year, the credit cannot be claimed until installation is completed. This is important for homeowners facing contractor delays or supply chain issues.
Using funds from certain government programs can also affect eligibility. If a heat pump is fully covered by a federal grant or rebate, the homeowner cannot claim the tax credit. However, if only part of the cost is covered, the remaining out-of-pocket expenses may still qualify.
Additionally, claiming a heat pump as a business expense for a home office deduction may impact eligibility for the residential energy credit. Homeowners should consult a tax professional to determine whether dual-use deductions create conflicts.