How to Get Heat Pump Rebates and Federal Tax Credits

Heat pump rebates and federal tax credits look different heading into 2026 than they did a year ago. The main federal tax credit for air-source heat pumps expired on December 31, 2025, but two federally funded, state-run rebate programs remain active, offering up to $8,000 toward a qualifying system for income-eligible households. Geothermal heat pumps still qualify for a separate 30% federal tax credit with no dollar cap.

What Ended and What’s Still Available

Section 25C of the Internal Revenue Code, the Energy Efficient Home Improvement Credit, paid 30% of heat pump costs up to $2,000 per year. The One Big Beautiful Bill Act, signed in July 2025, repealed that credit for equipment installed after December 31, 2025.¹ If your system was installed on or before that date, you can still claim the credit on your 2025 tax return; the last section of this article covers how.

Two programs created by the Inflation Reduction Act continue: the Home Electrification and Appliance Rebates (HEAR) program and the Home Efficiency Rebates (HOMES) program. Both are direct cash rebates, not tax credits, and both are funded through 2031, though each state controls its own timeline.² The One Big Beautiful Bill Act modified funding for some Inflation Reduction Act programs, so confirm current availability with your state energy office before you plan around a rebate.

The HEAR Program: Up to $8,000 Based on Income

HEAR targets electrification projects for households earning less than 150% of the area median income. It covers heat pumps for space heating and cooling, heat pump water heaters, electrical panel upgrades, and other electrification improvements. The maximum rebate for a heat pump is $8,000 per household.³

How much you actually receive depends on where your household falls relative to your area’s median income:

Below 80% of area median income: rebate covers up to 100% of project cost, capped at $8,000.
Between 80% and 150% of area median income: rebate covers up to 50% of project cost, still capped at $8,000.
Above 150% of area median income: not eligible.

Homeowners and renters can both qualify. The heat pump must either replace a non-electric heating system or be a first-time purchase for your home.² Replacing an oil furnace with a heat pump qualifies. Swapping an old electric heat pump for a newer one does not, because the program is designed to shift households off fossil fuel heating.

To locate your position on the income scale, look up your county with the Fannie Mae Area Median Income Lookup Tool or check the income guidelines published by your state energy office. Household size matters: a family of four has a higher threshold than a single person in the same county.

The HOMES Program: Rebates Based on Energy Savings

HOMES rewards overall energy savings from a home upgrade package rather than a single appliance. A heat pump can anchor that package. The program uses one of two measurement methods:⁴

Modeled savings: a certified auditor projects your home’s savings before and after the work. You need at least 20% modeled savings to qualify, with larger rebates at 35% or more.
Measured savings: your actual utility bills before and after installation are compared. The threshold is at least 15%.

Rebate amounts scale with both income and the percentage of savings achieved. Households at or below 80% of area median income receive substantially larger rebates than those above that threshold. The Department of Energy sets baseline maximums, but states set their own caps, and some go considerably higher for whole-home upgrades. Your state energy office publishes the exact figures.

Geothermal Heat Pumps: The 30% Credit That Survived

Geothermal (ground-source) heat pumps sit under Section 25D, the Residential Clean Energy Credit, not the repealed 25C provision.⁵ The 25D credit is worth 30% of the total installation cost with no annual dollar cap. That matters because geothermal installations often run $15,000 to $30,000 or more.

The credit is nonrefundable, so it can only reduce what you owe to zero. Any unused portion, however, carries forward to future tax years until you’ve absorbed the full amount.⁵ The system must meet Energy Star requirements in effect at the time of purchase. The One Big Beautiful Bill Act also modified Section 25D, so verify the credit’s current status and any phase-down schedule with the IRS before you sign a contract.

Stacking Rebates With Tax Credits

You can combine a state HEAR or HOMES rebate with a utility incentive and, for geothermal, with the 25D tax credit. The IRS treats rebates from the Department of Energy’s home energy rebate programs as purchase price adjustments rather than taxable income, so you won’t owe tax on the rebate itself.⁶

The catch is how the math interacts. When you claim both a rebate and a federal tax credit on the same purchase, you calculate the credit on your cost after the rebate. Spend $10,000 on a geothermal system, receive a $4,000 state rebate, and the 25D credit applies to the remaining $6,000, giving you a $1,800 credit instead of $3,000. The rebate also reduces your cost basis in the property for tax purposes.⁶ Utility company rebates for high-efficiency heat pumps are separate again, so ask your local provider.

How to Apply for a State Rebate

Each state runs its own version of HEAR and HOMES through its energy office. The steps look similar across states, but details vary.

First, check whether your state’s program is active. Launch dates differ and some states may have committed their initial funding. Your state energy office website will list current status, income guidelines, and participating contractors. Then confirm which application model your state uses. Some states use point-of-sale: the contractor reserves the rebate before starting work and deducts it from your invoice, so you never pay full price. Others reimburse after installation, meaning you upload documents through a state portal and wait. Post-installation processing can take several weeks to a few months depending on volume, with funds arriving by direct deposit or check.

Whatever the model, apply as soon as possible after installation. Some programs set deadlines as short as 90 days from the purchase date, and missing the window forfeits the rebate.

Why the Contractor You Pick Matters

For HEAR and HOMES projects, most states maintain a registry of approved installers with specific certifications, commonly NATE certification or completion of a Department of Energy heat pump training program. Using an unapproved contractor can disqualify the project entirely, even if the equipment meets every efficiency requirement.

Before you sign, ask whether the installer is enrolled in your state’s rebate program and whether they file the rebate paperwork on your behalf. A contractor experienced with these programs will know which models qualify, what documentation to supply, and how to avoid the errors that stall approval. State energy office websites typically publish searchable directories.

Documentation to Collect

Start gathering paperwork at installation, not weeks later. State rebate offices generally want a contractor invoice showing installation date, equipment cost, and labor separately; proof of purchase; and the AHRI (Air-Conditioning, Heating, and Refrigeration Institute) certificate confirming that the indoor and outdoor components together meet the required efficiency rating. Model and serial numbers for both units appear on most state forms.

HEAR and HOMES also require income verification. Expect to provide recent tax returns, pay stubs, or documentation of government assistance to show your household is under the threshold. A copy of the local building permit can speed things up.

For the 25D credit on a geothermal system, file IRS Form 5695 (Residential Energy Credits) with your annual tax return.⁷ It attaches to your Form 1040, 1040-SR, or 1040-NR.⁸ Keep the contractor invoice, AHRI certificate, and proof of purchase. The IRS recommends holding those records for at least three years after filing the return that claims the credit.⁹

Claiming the 25C Credit for a 2025 Installation

If your heat pump was installed on or before December 31, 2025, you can still claim the Energy Efficient Home Improvement Credit on your 2025 return. The credit is 30% of the total cost including labor, capped at $2,000 for heat pumps. A separate $1,200 annual limit applies to other efficiency improvements like windows and insulation, so the combined ceiling across categories is $3,200 per year. Electrical panel upgrades tied to the heat pump qualified for up to $600 within the $1,200 bucket.¹⁰

File Form 5695 with your 2025 return. Line 29a asks for the Qualified Manufacturer Identification Number and cost of your most expensive heat pump; line 29b covers additional heat pumps.⁸ Reporting the manufacturer’s QM code is required for 2025 installations, and your installer or the manufacturer can supply it.¹⁰

One detail catches people off guard. The 25C credit is nonrefundable and cannot be carried forward. If the credit exceeds your tax liability for the year, you lose the unused portion permanently.¹¹ Someone who owes $1,200 in federal tax and claims a $2,000 credit gets $1,200 in savings, not $2,000, and there’s no recovering that $800 later. The property must be your principal residence, and the system had to meet the Consortium for Energy Efficiency’s highest efficiency tier in effect at the start of 2025.¹² Your contractor’s AHRI certificate confirms whether your specific model met that tier.

1
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
2
ENERGY STAR. Home Electrification and Appliances Rebate Program
3
Department of Energy. Home Energy Rebate Programs – Requirements and Application Instructions
4
ENERGY STAR. Home Efficiency Rebates (HOMES) Program
5
Internal Revenue Service. Residential Clean Energy Credit
6
Internal Revenue Service. Federal Tax Treatment of Amounts Paid Toward the Purchase of Energy Efficient Property and Improvements Under Department of Energy Home Energy Rebate Programs
7
Internal Revenue Service. About Form 5695, Residential Energy Credits
8
Internal Revenue Service. Form 5695 – Residential Energy Credits
9
Internal Revenue Service. How Long Should I Keep Records
10
Internal Revenue Service. Energy Efficient Home Improvement Credit
11
Internal Revenue Service. Energy Efficient Home Improvement Credit – Timing of Credits
12
Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit