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

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Is there a federal tax deduction for heat pumps? Yes! 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! How do you qualify for the Inflation Reduction Act heat pump tax credit? Simply install and file the following year to receive the federal tax credit for your heat pump.

Notably:

  • Value: Enjoy a 30% heat pump federal 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 heat pump water heater will be eligible for a tax credit of up to $600. These federal tax credits for heat pumps are definitely worth it!
  • Installation Deadline: To claim the federal heat pump tax credit in a given tax year, you must have installed your heat pump with a SEER2 rating greater than or equal to 16 during that year (no need to search “what SEER rating do I need for tax credit qualification?”). To claim the federal tax credit for heat pumps or heat pump water heaters 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 for federal tax credits for heat pump installations, including federal tax credits for heat pump water heaters, too. 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.

Wondering how much this will cost you with rebates and tax incentives included?

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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. 
    • PART I: ​​Residential Clean Energy Credit
      Form 5695 Residential Energy Tax Credits
    • PART II: Energy Efficient Home Improvement Credit
      • Continue filling out lines 17 through 32.
      • In Section A Line 18, enter the total invoice amount for insulation and air sealing. 
      • In Section B Line 25ab, enter the total invoice amount for electrical panel upgrades. 
      • 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
    2. Integration with Form 1040: Add the relevant tax credit details to your standard Form 1040 during the tax filing process.
    3. 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.

    New Year, New Heat Pump: Don’t Wait to Take Climate Action in 2024

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    climate-friendly homeelectric home upgradeselectrification roadmaphome electrification

    Congratulations on surviving the holidays with your in-laws and diving head first into your New Year’s resolutions! Is upgrading to a climate-friendly home on that list? Here’s a friendly yet firm nudge: 2024 is not just another year, it’s a crucial time to consider upgrading to a heat pump or heat pump water heater.

    Why the rush? Well, it’s not only about enjoying a cozier home and smarter savings on your bills. We’re racing against time for the planet. The clock is ticking towards 2030, a year earmarked by experts as critical for reducing global carbon emissions. Every heat pump installed is a step towards that goal. Sticking with that old furnace or unreliable water heater? That’s not just a hassle waiting to happen; it’s a missed opportunity to join the fight against climate change.

    So, why not kick off the year by making your home more efficient and comfortable? What’s the best time of year to buy a heat pump? Don’t wait – the time is now!

    1. Accelerating the Tipping Point: Every Installation Counts

    What is the future of heat pumps? Well, we are approaching a critical tipping point in heat pump adoption. Every installation is a significant contribution, providing essential social proof that accelerates the transition to green energy. By installing a heat pump now, you’re not only taking a personal stand against climate change but also inspiring confidence in others to join this growing movement. Your action today is a powerful catalyst in this critical journey.

    2. The Slow Rebate Rollout: A Call to Act Now

    While the Inflation Reduction Act offers the promise of direct-pay rebates, its slow implementation—with only a few states expected to roll out rebates this year—suggests that waiting may not be the best strategy. If you’re in a position to install a heat pump without relying on these incentives, it’s prudent to proceed. Waiting could mean missing out on immediate benefits and potentially facing uncertainties regarding rebate qualifications.

    3. A Singular Opportunity for Long-Term Impact

    Choosing your next HVAC system is a once in every two decades decision. Opting for a heat pump now avoids the risk of being forced to select a less sustainable option in an emergency. A proactive choice today ensures that you are not contributing to another two decades of emissions. At what age should a heat pump be replaced? When well-kept, you can expect 15+ years out of your heat pump.

    4. Stay Ahead of the Demand Curve

    Demand for heat pumps is expected to surge, especially once rebates do become more widely available. As we’ve seen happen before, this increase in demand will likely lead to higher prices and longer installation wait times. By acting now, you avoid these pitfalls, start saving on energy costs immediately, and contribute to stabilizing market demand.

    5. Influence Your Community: Share Your Climate Journey

    Installing a heat pump gives you a unique opportunity to influence your community. Rather than boasting, use this chance to share your experience upgrading to a climate-friendly home. Your story can (and will!) inspire others to make similar choices, creating a ripple effect of positive environmental impact. Send us an email at hello@elephantenergy.com – we’d love to share your story.

    Conclusion: The Time to Act is Now

    In 2024, the message is clear: waiting comes with a cost, too. Installing a heat pump is a critical step towards a sustainable future. It’s a decision that benefits you, your community, and the planet. If you’re able to install a heat pump this year, don’t wait for a ‘better time’ or more incentives – the time to act is now.

    Ready to get started? Join us in building a brighter future by electrifying everything, starting with homes. Your choice today shapes our collective tomorrow!

    Resource Roundup for Your Climate-Friendly Home Journey

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    WHEW, we made it. The home stretch, the last chapter, the grand finale—whatever you want to call it. It’s our seventh and final post in our climate-friendly home series. In this final edition, we’re sharing a roundup of all our favorite resources to help make your climate-friendly journey as simple as possible. Read on for a whole host of helpful guides, databases, toolkits, and more—and drop us a line if you think there’s something we should add. 

    Guides to Climate-Friendly Home Upgrades:  

    All Things Solar: 

    Incentives & Rebates 

    —

    Still looking for a resource to help you determine where to start your climate-friendly home journey? Look no further than Elephant’s tool, Your Electrification Roadmap®. By answering some simple questions and providing a few key details about your goals and preferences, you can get a personalized plan to simplify your journey to home electrification. 

    Incentives Better than Ever for Your Climate-Friendly Home

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    Over the past few weeks, we’ve been digging into all the pieces that go into making your place as climate-friendly as possible: from the appliances and systems you install, to the type(s) of energy you use, to the importance of maximizing efficiency and taking care of your stuff so it lasts.

    We’re going to go out on a limb and guess that, at some point in your reading, the question of cost has crossed (or perhaps even consumed) your mind. And whether you’re in the camp of “hmm, seems expensive. I’m not sure how I’d swing it,” or “pssh, in my DREAMS. Someone’s gotta pay for this, and I can’t do it,” hang tight. We’ve got you covered. Let’s dig into all the incentives available to help make these solutions more affordable and accessible than ever. 

    Federal Incentives 

    Inflation Reduction Act (IRA) 

    Passed in August 2022, the Inflation Reduction Act was the most significant investment in greenhouse gas reductions ever in the US. It offers both tax credits and rebates to homeowners looking to make their spaces more energy-efficient and climate-friendly. Here are just a few of the ways you can save now: 

    • Rooftop solar and battery storage tax credits (30% of total project cost, up to $2000 max credit) Climate-friendly home incentives from Elephant Energy
    • Heat pump tax credit (up to $8000, depending on income) 
    • Heat pump water heater tax credit (up to $2000) 
    • Weatherization/energy efficiency tax credit (up to $1,200) 

    If you’re looking for a handy tool to see how much your home, specifically, could save through IRA incentives, check out Rewiring America’s great IRA calculator. 

    Additionally, states can apply for funding for direct-pay rebates (HEEHRA rebates) that will provide an upfront, point-of-sale reduction to your project. We’re still waiting for more details on the timing of these rebates—stay tuned by signing up for our newsletter (find the form in the footer of our homepage). 

    Psst—Learn more about making the most of IRA incentives right here. 

    State and Local Incentives 

    Sorry to go all 1 AM infomercial on ya, but that’s not all, folks! Read on, if you’re in CO or MA:

    Turns out there are plenty of local and state-specific incentives in addition to the aforementioned federal ones. For instance, Coloradoans can take advantage of a state tax credit and sales tax exemption on heat pumps, heat pump water heaters, and certain energy storage systems. And Massachusetts residents can save significantly on climate-friendly home upgrades through the Mass Save® rebates program. There’s a ton of variation between different states, counties, and even local utility companies—and, in our final edition of this series, we’ll be sharing a whole host of resources to help you find and take advantage of those programs. 

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    Forgotten where to start? Learn more about the electrification upgrades that will make the most impact in your specific home with our free tool, Your Electrification Roadmap®. Answer a few quick questions, and we’ll give you a plan designed to meet your distinct needs. 

    Rule 3: Be Efficient (Part 2)

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    Hello. Welcome back to our climate-friendly home series. We’re stoked you’re here. If you’re new to the party, here’s what we’ve covered thus far: 

    1. The basics of a climate-friendly home 
    2. Rule 1: Don’t burn stuff 
    3. Rule 2: Don’t use energy made from burning stuff 
    4. Rule 3: Be efficient. 

    Today, we’re digging deeper into rule 3. Where our last edition focused on the importance of energy audits and weatherization, this post is all about making sure your systems are running the way they are supposed to run, AND that you aren’t replacing things all the time. 

    Embracing this rule comes with lots of perks: It can help ensure you aren’t stuck with a broken heating system when the in-laws are visiting over the holidays (yikes), prevent an unforeseen trip to the local appliance store on what was supposed to be a spectacular ski weekend (eek), and make your place a climate-friendly haven (yay!). Want to learn more? Let’s get into it. 

    Why It’s Important to Make Things Last

    Take care of you heat pump and other energy-efficient appliancesTo understand why “making it last” is so critical for efficiency, we first need to do a teeny science lesson on something called embodied energy.  

    Let’s say you buy a new fridge. It’s a rad new fridge with a computer that tells you when to buy new milk. As the most efficient fridge of its size, it will use 10% less energy than your old fridge. This is cool. (See what we did there?)

    That fridge is made of parts and materials that took energy to make.
    It took energy to put it on a boat and get it across the ocean to a warehouse.
    It took energy to get it delivered to the store where you bought it, and more energy to get it to you and get it installed.

    All that energy tied up in making that fridge and getting it to you? That’s embodied energy. And while that feels like a lot, the reality is that, over time, your energy-efficient fridge is going to “pay for” that embodied energy by SAVING lots of energy each year. So getting that new one IS better for the planet…in the long run.

    But what if you have to buy a new one every 5 years? Does it “pay for” itself then? Nope. That’s why, beyond saving yourself the extra expense of having to replace appliances more often than necessary, making things last is a crucial component of a climate-friendly home. 

    So, How Do We “Make It Last”? 

    In short: We’ve gotta take care of our stuff. We’ve got to do our required yearly maintenance, as well as recommended preventative maintenance. 

    This means we need to vacuum the fridge coils. Change the filters on our heat pumps. Keep our induction stovetops nice and clean. Regularly flush our heat pump water heaters. Doing this maintenance ensures our system doesn’t have to work extra hard (i.e., inefficiently) because the filter is super dirty or other maintenance hasn’t been performed. 

    If keeping our systems maintained gives us an additional couple of years of life for our systems and appliances, that might mean that we buy one whole fridge fewer over our lifetime (in other words—BIG embodied and pocketbook energy savings). 

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    If you’re in an Elephant Energy coverage area (Colorado and Massachusetts, and more to come), give us a shout to learn about our maintenance packages that’ll keep your climate-friendly upgrades in tip-top shape. And if we aren’t in your area yet, ask your installation specialists when you make these home upgrades to see what they offer by way of keeping your systems singing year after year.

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