Federal Tax Credits for Heat Pumps!
Federal tax credits for heat pumps are set to expire on December 31, 2025. Recent legislation known as the “One Big Beautiful Bill Act” accelerated the original expiration date, shortening the availability of these incentives. To qualify, a heat pump must be installed and placed into service by the end of 2025.
Types of tax credits for heat pumps
1. Energy Efficient Home Improvement Credit (Section 25C)
This credit offers homeowners up to $2,000 for the installation of a qualifying electric or natural gas heat pump.
- Coverage: 30% of the project cost, including installation expenses.
- Annual limit: This $2,000 credit for heat pumps is part of a larger $3,200 annual credit limit for all eligible energy efficiency upgrades under Section 25C.
- Expiration: December 31, 2025.
2. Residential Clean Energy Credit (Section 25D)
This credit covers qualifying geothermal heat pumps, which are a form of renewable energy.
- Coverage: 30% of the project cost, with no annual or lifetime dollar limit.
- Eligibility: The credit is based on expenses for systems like solar, wind, and geothermal. Geothermal heat pumps must meet Energy Star guidelines.
- Expiration: December 31, 2025.
What this means for homeowners
If you are planning to install a heat pump and want to take advantage of these federal tax credits, it is important to act quickly to meet the 2025 deadline. Due to increased demand, contractor availability may be limited as the deadline approaches.