← BACK

Federal Heat Pump Tax Credit – Understanding the 2023 Heat Pump Tax Credit

The 25C tax credit, under the Inflation Reduction Act, offers substantial benefits for individuals investing in heat pump systems, heat pump water heaters, electrical panel upgrades, select weatherization measures, and energy audits – including you, our customers!

Notably:

  • Value: Enjoy a 30% tax credit on the total purchase of any combination of air source heat pumps and heat pump water heaters, capped at $2,000, other upgrades capped at $1,200 and electrical panel upgrades installed in conjunction with a heat pump or  HPWH will be eligible for a tax credit of up to $600.
  • Installation Deadline: To claim the tax credit in a given tax year, you must have installed your heat pump during that year. So to claim the credit for the 2023 tax year, ensure your heat pump HVAC system or heat pump water heater installation was completed before December 31, 2023.
    • The credit limit is applicable on an annual basis, resetting each year, allowing for its reuse annually.
  • Property Requirements: Equipment must be installed in an existing home and your principal residence (the place you occupy most of the time). New construction and rentals do not apply. The principal residence must be in the United States and may be a house, houseboat, mobile home, cooperative apartment, condominium, or a manufactured home to qualify.
  • Example: For instance, if your federal tax liability amounts to $3,000 and you qualify for the maximum $2,000 credit, your owed taxes decrease to $1,000 after applying the credit.
    25c Heat Pump Tax Credit

Energy Efficiency

Energy Efficiency investments qualify for the Energy Efficiency tax credit.

  • This credit is 30% of the project cost up to a maximum of credit value of $1,200
  • Upgrades that qualify:
    • Attic Insulation
    • Basement / crawlspace insulation

Home Energy Audits

A home energy audit for your main home may qualify for a tax credit of up to $150. In order to qualify, the home energy audit must:

  • Include a written report and inspection that identifies the most significant and cost-effective energy efficiency improvements with respect to the home, including an estimate of the energy and cost savings with respect to such improvement.
  • Be conducted and prepared by a home energy auditor

Disclaimer: While we provide guidance, it’s crucial to seek advice from a tax professional regarding individual tax situations. Our presentation doesn’t assume liability for your specific tax circumstances.

How to Claim / File for the Heat Pump Tax Credit:

  • IRS Form 5695: Complete this form (specifically Part Two: Energy Efficient Home Improvement Credit) to outline your eligibility for the heat pump tax credit.
  • Fill out your Name, Social Security Number, and your main home’s address. 
    1. PART I: ​​Residential Clean Energy Credit
      Form 5695 Residential Energy Tax Credits
    2. PART II: Energy Efficient Home Improvement Credit
      1. Continue filling out lines 17 through 32.
      2. In Section A Line 18, enter the total invoice amount for insulation and air sealing. 
      3. In Section B Line 25ab, enter the total invoice amount for electrical panel upgrades. 
      4. In Section B Line 29abc, enter the total invoice amount for heat pumps and/or heat pump water heaters.
        Section A - Qualified Energy Efficiency Improvements
        Section B - Residential Energy Property Expenditures
    1. Integration with Form 1040: Add the relevant tax credit details to your standard Form 1040 during the tax filing process.
    2. Submission: Ensure Form 5695 is included when filing your taxes to claim the credit accurately.

    MORE DETAILED INSTRUCTIONS ON FILLING OUT THE FORM HERE.
    MORE INFO HERE.

    And once again, thank you for being a part of the Elephant Energy Herd!! We couldn’t be where we are without wonderful customers like yourselves. And in return, we’re here for you – before, during, and after your Climate-Friendly Home Upgrade.