How to Claim the California Heat Pump Tax Credit
Clarify the process for claiming California's tax credit after installing an energy-efficient heat pump, ensuring all state requirements are met.
California residents can use financial incentives to lower the cost of energy-efficient home heating and cooling systems. The primary incentive is the federal Energy Efficient Home Improvement Credit, which is separate from state-administered rebate programs like California’s High-Efficiency Electric Home Rebate Act (HEEHRA).
California’s HEEHRA Rebate Program
California administers the federally funded High-Efficiency Electric Home Rebate Act (HEEHRA), which provides income-dependent, point-of-sale rebates that reduce the purchase price directly. Households with an income below 80% of the area median income (AMI) may be eligible for rebates up to $8,000 for a heat pump. Those with an income between 80% and 150% of the AMI may qualify for rebates up to $4,000.
HEEHRA has limited funding, and as of early 2025, the rebate budgets for single-family homes in both Northern and Southern California were fully allocated.
Federal Tax Credit: Taxpayer and Property Eligibility
To qualify for the federal heat pump tax credit, a person must be an individual who pays federal income taxes. The property where the heat pump is installed must be the taxpayer’s principal residence and located within the United States. The credit is for improvements made to an existing home or an addition, as newly constructed homes do not qualify. The taxpayer must own the residence to claim the credit, and there are no income limitations to qualify.
Federal Tax Credit: Qualifying Heat Pump Systems
A heat pump’s eligibility for the tax credit depends on its technical specifications and energy efficiency ratings. The equipment must meet or exceed the highest efficiency tier established by the Consortium for Energy Efficiency (CEE), not including advanced tiers. The equipment must meet the CEE criteria in effect at the beginning of the year it is installed.
Specific energy efficiency ratings determine qualification, and these requirements vary by system type and climate region. Qualifying equipment is often ENERGY STAR certified, and consumers can find lists of eligible models on the ENERGY STAR website. The system must be purchased new and placed in service between January 1, 2023, and January 1, 2033.
Federal Tax Credit: Calculating the Credit Amount
The heat pump tax credit is 30% of the total project cost, which includes the heat pump unit and associated installation labor. The credit is capped at a maximum of $2,000 per tax year, which allows homeowners to phase their energy-efficient upgrades over multiple years. For instance, if a homeowner installs a qualifying system for $8,000, the 30% calculation is $2,400, but the credit is capped at $2,000. If the total cost were $6,000, the credit would be $1,800.
This is a nonrefundable tax credit, meaning it can reduce a taxpayer’s federal income tax liability to zero, but no portion is paid out as a refund. If a tax liability is less than the credit, the taxpayer can only use the amount of their liability. The remainder cannot be carried forward to a future tax year.
Federal Tax Credit: Information and Documentation Needed
To claim the heat pump tax credit, taxpayers must gather specific documents before filing. You will need the following for your records:
- A detailed invoice from the installer that separates equipment costs from labor expenses.
- Proof of purchase, such as a receipt for the unit.
- A signed manufacturer’s certification statement attesting that the heat pump model qualifies for the credit.
- The installer’s full name, address, and contractor license number.
The credit is claimed using IRS Form 5695, Residential Energy Credits, which requires the costs of the property and installation labor. Beginning in 2025, taxpayers must also report a product identification number for the equipment, which the manufacturer should provide.
Federal Tax Credit: How to Claim the Credit
To claim the credit, file the completed IRS Form 5695 with your annual federal income tax return, such as Form 1040. The total credit amount from Form 5695 is transferred to Schedule 3. Tax preparation software will guide users through claiming the Residential Energy Credit and attach the form to an e-filed return. If filing by mail, include the completed Form 5695 with your tax return packet.
Keep all related documentation, including invoices, proof of payment, and the manufacturer’s certification statement, for at least three years. These records are needed for verification if the IRS has questions about the credit.