All About the Heat Pump Rebates in the Inflation Reduction Act


One in three homes stand to save money by investing in a heat pump system, according to UC-Davis researchers. That helps explain why the Air Conditioning, Heating and Refrigeration Institute reported a 7.6 percent year-over-year increase in heat pump shipments in July 2022. 

But the feds are hoping to give that number a boost thanks to generous incentives included in the Inflation Reduction Act of 2022.

The 730-page law makes for dull reading, but fortunately, we’ve boiled everything you need to know into an article you can read in less time than it takes to walk over and manually program a thermostat.

How the Inflation Reduction Act Incentivizes Heat Pumps

The $369 billion Inflation Reduction Act includes tax credits and about $9 billion in rebates for home electrification. That money helps homeowners offset the costs of new equipment that lowers their heating bills and make their homes more energy efficient.

Those incentives shake out in two ways:

IRA Heat Pump Rebates

There is about $4.5 billion set aside in the Inflation Reduction Act for instant rebates on heat pumps, electric stoves, clothes dryers, breaker boxes, modern wiring, and insulation. These rebates target low- and medium-income households.

Rebates are awarded at the point of sale, which means homeowners won’t have to mail anything in or wait around for the money.

Half of a household’s energy consumption comes from the HVAC system for heating and cooling the house, according to the Energy Information Administration. That’s why the heat pump rebate is the largest from $2,000 to $8,000, depending on household income.

IRA Tax Credits

Homeowners who don’t qualify for rebates can instead access tax credits through the Energy Efficient Home Improvement Credit, also known as 25C. This allows you to deduct up to 30 percent of the cost of home improvements like heat pumps and other electric appliances, insulation, breaker boxes, and electric wiring. You’ll have to include these deductions when you file your taxes.

While most of those upgrades are capped at $1,200 per household per year, homeowners who want to install a heat pump can deduct up to $2,000 per year.

Here’s What Heat Pump Rebates and Tax Credits You Qualify For

The level and type of incentive you qualify for depends on two factors: your household income and the median income where you live. 

If you make:

Less than 80 percent area median income (AMI): Homeowners are eligible for rebates worth 100 percent of the purchase up to the limit of the item. For example, the cap for a heat pump is $8,000. You can claim up to $14,000 for the year.

80 to 150 percent AMI: At this income level, the rebates reimburse up to 50 percent of the item. The same annual maximum of $14,000 per year in rebates applies.

More than 150 percent AMI: For high-income earners, there are tax credits available for up to $2,000 to install heat pumps. 

Here’s an example of how that looks in practice. Jen, a vet tech, and Bob, a plumber, own a home in Detroit. They make 90 percent of the area median income. They replace their old boiler with a mini-split heat pump for $8,500. They’ll be eligible for $4,250 in rebates.

For an even more detailed breakdown of what — and how much — you qualify for under the Inflation Reduction Act, check out this calculator from Rewiring America. There, you can put in your income, zip code, and other information to get a personalized look at what incentives are available for you.

How to Tell if Your Heat Pump Qualifies

If your heat pump is Energy Star-certified, it qualifies for the new rebates and tax credits.

But, if you like to dive into the nitty-gritty details to make sure your i’s are dotted and your t’s are crossed, here’s what you need to know.

There are two kinds of heat pumps: split and package. A split system places the evaporator coil and air handling unit inside and the compressor and condenser outside. Package systems contain the condenser, compressor, evaporator coil, and air handler in one outside unit.

Every heat pump will offer three kinds of ratings — a Heating Seasonal Performance Factor (HSPF), an Energy Efficiency Ratio (EER), and a Season Energy Efficiency Ratio (SEER).

Each rating measures energy efficiency in a slightly different way based on how it performs, on average, in the heating season, the cooling season, and when it is working its hardest.

According to the Department of Energy, your heat pump must meet or exceed the following ratings:

Split systems

  • HSPF of at least 8.5

  • EER of at least 12.5

  • SEER of at least 15

Package systems

  • HSPF of at least 8

  • EER of at least 12

  • SEER of at least 14

How You Can Qualify for Incentives Today (And Where to Look for Updates Next Year)

Most of the Inflation Reduction Act doesn’t kick in until Jan. 1, 2023. That doesn’t mean there aren’t programs to take advantage of right now if you just can’t wait. With that in mind, here’s what you can do today if you’re planning to install a heat pump, along with where to watch for the final rules and processes to follow if you’re looking ahead to next year.

What You Can Apply for Today (And How to Do It)

Right now, there is a $300 tax credit for purchasing a heat pump. This is part of a larger program with tax credits for other energy-efficient upgrades. Keep in mind that the total tax credits you claim from the program can’t exceed $500.

To claim the tax credit:

  1. Download IRS Form 5695.

  2. Put $300 in Lines 22a, 23, 24, and 30.

  3. Submit it along with your taxes just as you would any other IRS form.

Where to Look for Updates

The Inflation Reduction Act revived some defunct energy efficiency incentive programs and extended the life of others. In most cases, as with the heat pump tax credit described above, it expanded who can take advantage of these programs and how much they can receive back. All those changes go into effect starting in 2023.

Keep an eye on Energy Star’s website. The nonprofit Rewiring America has also covered the impact of the IRA. You’ll find more information on the White House’s Inflation Reduction Act page and the Department of Energy’s page. And don’t forget to keep an eye on our blog.

More Home Electrification Incentives in the Inflation Reduction Act

The better sealed, insulated, and efficient your home is, the bigger impact a heat pump will have on your utility bill and the smaller your carbon footprint will be.

Here are some ways beyond heat pumps that the Inflation Reduction Act can help make that happen:

  • $1,750 rebate for heat-pump water heater

  • $840 rebate for heat-pump clothes dryer or electric stove

  • $4,000 rebate to upgrade electrical panels to accommodate new, high-efficiency appliances

  • $1,600 rebate for insulation and air duct sealing

  • $2,500 for electrical wiring improvements

Looking more broadly, other provisions of the Inflation Reduction Act will also indirectly benefit homeowners. For example, there is $500 million designated to help U.S. manufacturers build more heat pumps and process the materials needed to make the pumps. That will increase local supply and drive down costs for the appliances.

Meanwhile, the Residential Clean Energy credit extends a program that lets homeowners deduct 30 percent of the cost of installing solar panels and batteries from their taxes. A home heated and cooled by a heat pump can eliminate its gas bill. Connecting that system to solar lowers the electric bill, too.

Maximize Your Heat Pump Savings With Mysa Technology

Heat pumps are only the start of your home energy efficiency journey. That journey just got a little more affordable, thanks to many of the provisions in the Inflation Reduction Act. Technology can make those savings go a little further with tools like Mysa’s smart thermostats that adjust to your needs automatically without wasted energy.

Check out our guide on how to start a smart home to learn more.

by LastSale
by LastSale