Heat pumps: how federal tax credits can help you get one

In this video, experts explain how new federal clean energy tax credits passed under the Inflation Reduction Act can help you install a heat pump.

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Kaiba White, the Energy Policy and Outreach Specialist with Public Citizen, and Gracie Coates, energy advocate at Environment Texas Research & Policy Center, explain heat pump technology and how the clean energy tax credits and rebates can help you get one.

Why would you get a heat pump?

Heat pumps are the most efficient way to heat water, heat and cool your home (in almost all cases), and run a clothes dryer. They are 3-5 times more efficient than most current fossil fuel heating systems. Heat pumps save you money and are the most climate friendly option.

How do heat pumps work?

Heat pumps act as both air conditioners and heating units for your home. This can apply to both central-style heat pumps that can utilize your ductwork and mini-split units that can be installed in a wall or as window units.

When they are in air conditioning mode, they use low-pressure fluid to suck the heat out of your home and dump that into the air outside. As a heating unit, it pulls in warm air to heat your home. The heat pump switches back and forth if it’s in heating or air conditioning mode.

For folks who live in colder areas concerned about heat pumps not working because it’s cold outside, the reality is that there’s always heat in the air.

Heat pumps are so efficient because heat pumps are just moving heat around. Instead of burning a fossil fuel like natural gas to create heat and blow that throughout your house, heat pumps are concentrating and moving heat throughout your home, which takes a lot less energy to do.

What are heat pump water heaters?

Heat pump water heaters work exactly like a heat pump, except it has a heat exchange coil in the tank that heats the water.

A lot of heat pump water heaters that are tank style do also have a backup resistance heat so if you’re using a lot of water for some reason, you can get a little extra boost through that resistance heating, but that’s only there as a backup option. In normal operating mode, you’ll get the high efficiency of these water heaters.

Many of these are wi-fi connected so you can turn on or off or adjust the heat from your phone. The wi-fi feature also works with demand response programs where an electric utility pays a customer to reduce their energy demand (commonly used for air conditioners) and can be used for water heaters.

Paying for your heat pump

When it comes to paying for your heat pump, there are two ways the Inflation Reduction Act can help: tax credits and rebates.

Tax credits for heat pumps: Starting in 2023, you are eligible for a federal tax credit that will cover 30% up to $2,000 of the heat pump cost and installation. This tax credit is capped at $2,000 per year. If you are considering multiple energy upgrades, spacing those projects out over time can help you maximize the annual incentives between now and when they expire in 2032.

Rebates for heat pumps: If you meet the household income requirements, you may also be able to use rebates to get a heat pump. The rebates will all go through the state governments — thus, it’ll vary from state to state what agency is administering those rebates.

  • Home Heating and Cooling (HVAC) Heat Pump:
    • 100% rebate (up to $8,000) for low income*
    • 50% rebate for moderate income**
    • 30% tax credit (up to $2,000) for higher income
  • Hot Water Heat Pump
    • 100% rebate (up to $1,750) for low income
    • 50% rebate for moderate income
    • 30% tax credit (up to $2,000) for higher income
  • Electric Panel Upgrade
    • 100% rebate (up to $4,000) for low income
    • 50% rebate for moderate income
    • 30% tax credit (up to $600) for higher income
  • Electric Wiring
    • 100% rebate (up to $600) for higher income
    • 50% rebate for moderate income

* Any household making less than 80 percent of AMI is considered low income

** Any household making between 80 and 150 percent AMI is considered moderate income



Johanna Neumann

Senior Director, Campaign for 100% Renewable Energy, Environment America Research & Policy Center

Johanna directs strategy and staff for Environment America's energy campaigns at the local, state and national level. In her prior positions, she led the campaign to ban smoking in all Maryland workplaces, helped stop the construction of a new nuclear reactor on the shores of the Chesapeake Bay and helped build the support necessary to pass the EmPOWER Maryland Act, which set a goal of reducing the state’s per capita electricity use by 15 percent. She also currently serves on the board of Community Action Works. Johanna lives in Amherst, Massachusetts, with her family, where she enjoys growing dahlias, biking and the occasional game of goaltimate. 

Grace Coates

Clean Energy Associate, Environment Texas Research & Policy Center

Grace works as a campaign associate for Environment Texas, focusing on clean energy projects. Grace is an Austin local and loves exploring hiking trails and trying new recipes in her free time.

Matt Casale

Former Director, Environment Campaigns, PIRG

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