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You can claim a federal tax credit of up to $2,000 for a qualifying heat pump installed in 2026 under the Inflation Reduction Act's Section 25C Energy Efficient Home Improvement Credit. On top of that, federal HEEHRA rebates of up to $8,000 and state/utility incentives ranging from $500 to $16,000 can dramatically reduce — or even eliminate — your out-of-pocket cost.
The total potential savings from stacking federal, state, and utility incentives in 2026 ranges from $2,500 to $18,000+ depending on your state, income level, and system type. This guide explains every program available, the eligibility requirements, and exactly how to claim each one.
2026 Incentive Summary
Federal Tax Credit (Section 25C)
The Section 25C Energy Efficient Home Improvement Credit provides a 30% credit on the total cost (equipment + labor) of qualifying heat pump installations, capped at $2,000 per year for heat pumps specifically. This is part of a broader $3,200 annual cap for all energy efficiency improvements ($1,200 for other items + $2,000 for heat pumps/water heaters).
Key Details for 2026
Who qualifies: Any U.S. taxpayer who installs a qualifying heat pump in their primary residence (the home where you live most of the year). Rental properties and second homes do NOT qualify.
Annual, not lifetime: Unlike the old credit, Section 25C resets every tax year. If you install a heat pump in 2026 and a heat pump water heater in 2027, you can claim $2,000 each year.
Covers equipment and labor: The 30% applies to the total installed cost, including the heat pump unit, air handler, thermostat, electrical work, and installation labor.
No income limit: Every taxpayer qualifies regardless of income. However, it's a nonrefundable credit — it can reduce your tax liability to zero but won't generate a refund. If you owe less than $2,000 in federal income tax, you can't claim the full credit in one year (but you can carry the unused amount forward in some cases — consult a tax professional).
Example Calculation: You install a Carrier Infinity 24 heat pump for a total cost of $9,500 (equipment + labor). The 30% credit is $2,850 — but the cap is $2,000, so you claim $2,000 on your 2026 tax return. Your effective cost drops to $7,500.
HEEHRA Rebates (Up to $8,000)
The High-Efficiency Electric Home Rebate Act provides point-of-sale rebates — meaning the discount is applied at the time of purchase, so you don't have to wait until tax season. The amount depends on your household income relative to your area median income (AMI).
HEEHRA Rollout Status in 2026
HEEHRA funding is distributed through state energy offices, and rollout timelines vary. As of early 2026, over 40 states have active HEEHRA programs. To check if your state's program is live, visit your state energy office website or search the DSIRE database.
HEEHRA + 25C Stacking: In most cases, you CAN stack the HEEHRA rebate and the 25C tax credit. However, you can only claim the 25C credit on the portion of the cost NOT covered by the HEEHRA rebate. Example: $9,000 install − $4,000 HEEHRA = $5,000 remaining. 30% of $5,000 = $1,500 tax credit. Total incentive: $5,500.
Geothermal Tax Credit (Section 25D)
Geothermal (ground-source) heat pumps qualify for a separate, more generous credit under Section 25D — 30% of the total installed cost with NO cap. For a $30,000 geothermal system, that's a $9,000 credit.
This credit has no income limit, no annual cap, and no maximum credit amount. Unlike 25C, Section 25D is a nonrefundable credit but can be carried forward to future tax years if your tax liability isn't large enough to use it all at once. The 30% rate is available through 2032, dropping to 26% in 2033 and 22% in 2034.
State and Utility Rebates by Region
State and utility rebates are in addition to federal credits and can be substantial. Here's a snapshot of what's available in early 2026 — always verify current amounts with your state energy office.
How to Find Your Local Rebates: Search the DSIRE database (dsireusa.org) for your state and ZIP code. Also check your electric utility's website under "rebates" or "energy efficiency programs." Many utilities offer rebates that aren't listed in state databases.
How to Stack Multiple Incentives
The most powerful strategy is stacking federal, state, and utility incentives. Here are three real scenarios showing how stacking works.
In states with aggressive incentive programs, it's genuinely possible to get paid to install a heat pump. Even in states without additional incentives, the federal credit alone brings the cost down to a level competitive with conventional HVAC.
Qualifying Equipment Requirements
Not every heat pump qualifies for the full $2,000 credit. The unit must meet the CEE Highest Efficiency Tier in effect for the year of installation.
Don't Assume Your Unit Qualifies: The federal minimums changed for 2026 and may adjust again. Before purchasing, verify that your specific model number appears on the CEE qualifying product list or the ENERGY STAR product finder. Your HVAC contractor should confirm eligibility in writing before installation.
How to Claim the Federal Tax Credit
Claiming the 25C credit is straightforward but requires documentation.
Step 1: Keep all receipts. Save the contractor invoice, equipment specification sheet (showing model number and efficiency ratings), and proof of payment.
Step 2: Obtain the Manufacturer Certification Statement. Most manufacturers provide a certification statement (sometimes called a "tax credit certificate") confirming that the product meets the efficiency requirements. Check the manufacturer's website or ask your contractor.
Step 3: File IRS Form 5695. When you file your 2026 tax return (in early 2027), complete Part II of Form 5695 (Residential Energy Credits). Enter the total qualifying costs on line 24a, calculate 30%, and apply the $2,000 cap.
Step 4: Enter the credit on Form 1040. Transfer the credit from Form 5695 to your 1040 tax return. The credit reduces the tax you owe dollar-for-dollar.
Common Mistakes That Cost You Money
Installing a unit that doesn't meet CEE requirements. A heat pump with SEER2 15.5 (just below the 16.0 threshold) saves you nothing on the tax credit. Always confirm the exact model meets the CEE tier.
Forgetting to claim the credit. An estimated 30–40% of eligible homeowners fail to claim the 25C credit, leaving billions of dollars on the table nationally. If you installed a heat pump in 2024, 2026, or 2026 and didn't claim the credit, you can file an amended return.
Not stacking with state/utility rebates. Many homeowners claim the federal credit but never apply for their state or utility rebate. These rebates often require a separate application to the state energy office or utility company — they don't happen automatically.
Installing in a rental or second home. The 25C credit only applies to your primary residence. If you install a heat pump in a rental property or vacation home, it doesn't qualify (though it may be deductible as a business expense for rental properties).
Waiting too long to apply for state rebates. Many state and utility programs are funded on a first-come, first-served basis. Rebate pools can be exhausted before the program deadline. Apply within 30 days of installation.
Key Takeaways
The federal 25C tax credit covers 30% up to $2,000 for qualifying heat pumps in your primary residence — this is an annual credit, not a one-time benefit. HEEHRA rebates of up to $8,000 are available for low-income households in 40+ states. State and utility rebates of $500–$16,000 stack on top of federal credits. Geothermal systems qualify for a separate 30% credit with no cap under Section 25D. Stacking all available incentives can reduce your heat pump cost by $2,500–$18,000+. Always verify your specific equipment meets CEE requirements before purchasing, and file the credit on IRS Form 5695.