Choosing a heat pump has countless advantages if you’re considering installing a new HVAC system. They’re an all-in-one heating and cooling solution that runs solely on electricity. They’re remarkably efficient, so you could save money every month using one. However, all those benefits don’t come for free. Relatively high upfront prices often deter some homeowners from choosing a new heat pump. The good news is that there are tax credits to help defray the cost. Here’s everything you need to know.
Why Would Heat Pumps Qualify for Tax Credits?
At first, it may strike you as odd that a home upgrade of any kind would qualify for a tax credit. After all, you’ll be the one reaping the benefits, not the public or the government. Except that’s not exactly true when it comes to heat pumps. Policymakers consider heat pumps a key technology in the global fight to halt climate change. The reason is the extraordinary energy efficiency that comes with using them.
In the United States, electricity generation remains heavily dependent on fossil fuels. As a result, our grid pumps approximately .81 pounds of CO2 into the atmosphere per kWh produced. While energy providers are investing significantly in renewables to decarbonize the grid, it won’t reach net zero until 2050. And that’s an optimistic estimate. So, electricity conservation must also play a role in reducing carbon emissions.
Heat pumps contribute to this effort by eliminating direct emissions and conserving electricity compared to other electric HVAC options. According to recent studies, an average home may reduce its carbon footprint by up to 64% by installing a heat pump. That estimate accounts for using electricity from our still-polluted grid.
Here in Oregon, heat pumps can make an even more significant impact in reducing emissions. Statewide, our grid is already well on its way toward full decarbonization. At last count, 62% of our state’s electricity came from renewable sources. By further reducing consumption, the growth of that number will accelerate.
Available Tax Credits for Heat Pumps
Because of the Inflation Reduction Act of 2022, homeowners can now claim a tax credit for energy-efficient heating installation such as adding a heat pump. In most cases, homeowners can claim up to 30% of the cost of their heat pump, up to $2,000. It’s important to note that the tax credit isn’t refundable. That means you can only use it to reduce your tax liability, assuming you have any. Plus, you can’t carry forward the remaining credit amount into future tax years. For these reasons, it’s wise to consult a tax expert before installing your heat pump. They may advise you to adjust your tax withholding to maximize the impact of the credit.
Do All Heat Pumps Qualify for a Tax Credit?
Unfortunately, not every heat pump qualifies for the federal tax credit. Since the goal of the credit is to encourage efficiency, only specific models qualify. According to the law, only heat pumps classified as most efficient by the ENERGY STAR program qualify. That includes heat pumps with a SEER2 of at least 16, an EER2 of at least 11, and an HSPF of 8 or higher.
You can apply the tax credit to ducted or ductless heat pump systems. If your home doesn’t already have ductwork, a ductless mini-split may be the perfect option. They include a central outdoor unit that supports one or more indoor air handlers. A ducted system is likely your best option if your home already has ductwork. They have a similar form factor to traditional central ACs. So, if that’s what you’re replacing, your home likely won’t need significant alterations.
It’s worth pointing out that some dual-fuel heat pumps also qualify for the tax credit. They include a backup gas furnace for supplementary heat in colder climates. However, such systems aren’t typically necessary in this part of Oregon.
Other Ways to Save
Aside from the federal heat pump tax credit, there are other ways to cut the cost of a new heat pump. In spring 2025, Oregon will begin accepting applications for a federally backed heat pump rebate program. Based on another provision in the Inflation Reduction Act, the program will offer rebates of up to $8,000 toward the purchase of a new heat pump. The grant amounts vary based on household income; however, even homeowners earning up to 150% of their area’s median income are eligible.
You should also be aware that additional federal tax credits and rebates may be available for a heat pump installation. For example, there’s a tax credit meant to help offset the cost of an electrical panel upgrade. It allows you to claim up to 30% of your expenses, up to a maximum of $600. If your home requires a new panel to support a heat pump, it could help you offset the cost. There’s also a tax credit that applies to the costs of duct sealing. It’s worth up to 30% of your project cost, up to $1,200. If you’re upgrading to a new heat pump, duct sealing can help maximize its benefits.
The Oregon Department of Energy also offers heat pump rebates through its Community Heat Pump Deployment Program. It provides rebates of up to $5,000 on a new heat pump. The Energy Trust of Oregon also has numerous heat pump incentive programs. In Hillsboro, OR, there are heat pump incentives worth between $500 and $3,000, depending on your chosen system. There’s also an incentive worth up to $250 for new heat pump controls, such as smart thermostats and similar equipment.
Can You Combine Tax Credits and Incentives?
The best part of the available heat pump incentives and tax credits is that you can combine them. For example, you can still claim the tax credit if you qualify for the maximum federal heat pump rebate. Together, those two programs can significantly reduce the cost of a new heat pump to almost nothing. The same is true of the Energy Trust of Oregon programs. If you qualify for any of them, you can combine them with the federal programs for maximum savings. The only prohibition is that you can’t receive multiple Energy Trust rebates for the same system. However, you can claim a rebate on a heat pump and a control system simultaneously.
Your Local Heat Pump Experts
With so many incentives available to upgrade to an energy-efficient heat pump, we hope you’ll consider one. Talk to a tax professional for all the details and when it’s time to make your move, count on Pro Heating and Cooling, Inc. to handle your heat pump installation in Hillsboro. We also offer financing options on approved credit to help you pay for what the credits and rebates don’t cover. When you need heat pump repair and maintenance service, we’ll be there for you throughout the life of your system!
We’re a family-owned and -operated HVAC company with over 15 years of experience serving homeowners. Our HVAC technicians are NATE-certified, reflecting their high level of training and skill. We’re also members of the Air Conditioning Contractors of America, adhering to the highest industry standards. Plus, we’re a multi-year Nextdoor Neighborhood Fave and are Better Business Bureau accredited with an A+ rating. So, if you want to upgrade to a heat pump for your Hillsboro home, call Pro Heating and Cooling, Inc. now
