In 2021, the American Rescue Plan Act was passed by Congress, which included generous tax credits for homeowners who install a heat pump in their home. The tax credit covers 26% of the cost of a new heat pump up to $2,000 and is available through the end of 2023.
A heat pump is an energy-efficient heating and cooling system that uses electricity to transfer heat from one place to another. The system works by drawing hot air from outside and transferring it inside during cold weather or vice versa during hot weather. Heat pumps can be used for both heating and cooling in residential homes as well as commercial buildings.
The 26% federal tax credit for installing a heat pump applies to all systems installed between January 1st, 2021 and December 31st, 2023. To qualify for the credit, you must purchase an eligible energy-efficient heat pump with an Energy Star rating of at least 14 SEER (Seasonal Energy Efficiency Rating) or 12 EER (Energy Efficiency Ratio). The system must also have an HSPF (Heating System Performance Factor) rating of at least 8.5 or higher in order for you to receive the full benefit of the credit; otherwise you will receive a reduced amount based on your system’s efficiency rating. Additionally, only systems that are installed in existing residential homes are eligible; new construction does not qualify for this tax credit .
To claim your tax credit when filing your taxes next year, save all receipts related to purchasing and installing your new heat pump system along with any other required documents such as manufacturer certification statements or installation invoices/receipts showing that you purchased a qualifying unit with proper ratings. When it comes time to file your taxes next year, complete Form 5695 Residential Energy Credits on IRS Form 1040 Schedule 3 and attach all supporting documents along with it so that you can take advantage of this generous federal incentive program before it expires at the end of 2023!