How to Take Advantage of New Federal Heat Pump Rebates

The Inflation Reduction Act came into force in Aug 2022 to alleviate inflation, cut America’s energy costs, and reduce global warming. You may not think this affects you much, but the Act also brings good news for homeowners.
Two tax credits within the Act, the Energy Efficient Home Improvement Credit and the High-Efficiency Electric Home Rebate Program, offer tax credit or rebate savings for those who switch to a greener heating and cooling heat pump system. And it’s not only heat pumps covered under the scheme. From HVAC replacement installation to energy-saving appliances, savings are available to lower costs. If you’re looking to upgrade your heating system, now is the perfect time to take advantage of these savings. You could even be eligible for the full $8,000 rebate! We’ve put together all you need to know about the new incentives and the benefits of switching to a greener heat pump heating and cooling system.

The Inflation Reduction Act

This Act is pretty big, and you don’t need to know all the details to be eligible for the savings. So we’ve broken it down to give you the essentials.

The Background

Global warming and climate change are now seriously affecting our planet. It’s scary to think about what kind of problems our kids and grandkids might face if we don’t take action soon. That’s why the Government passed the Inflation Reduction Act (IRA) in 2022. It brings about significant changes because no other government has ever committed so much money to tackle climate issues. The US is serious about shifting toward more sustainable energy sources. In addition to lowering healthcare costs, the Act offers cash incentives to homeowners to help them switch to greener energy sources. For most, it’s a win-win situation – you can save money on your energy bills and help save the planet at the same time.

What the Act Means for You

So, what does all this mean for your wallet? More savings, hopefully. By switching to greener energy sources, including heat pumps, quality exterior doors, appliances, and electrical panels, you can apply for Energy Efficient Tax Credits up to the value of $1,200. For lower-income households, you may also qualify for the IRA heat pump rebate allowing you to claim between 50% to 100% of your installation costs, allowing all families to make energy-efficient choices regardless of income. We’re all responsible for the state of the Earth. So, applying for and using these tax credits and rebates, it’s an opportunity to lower our carbon footprints. In fact, it’s hoped that the US can reduce its collective carbon footprint by 40% by 2030 – no mean feat.

What is a Heat Pump?

Fed up with your existing furnace and HVAC system? With the introduction of the IRA, investing in a heat pump makes good sense. Their ability to both heat and cool a space makes them a versatile option for year-round comfort.
Rather than burning fuel, an energy-efficient heat pump uses a refrigerant cycle to transfer heat energy from one place to another. It’s greener because it doesn’t generate heat or cool air but moves existing heat from one place to another. A heat pump system consists of three main components:
  1. The outdoor unit contains the compressor and heat exchanger for extracting and transferring heat.
  2. The indoor unit includes the evaporator coil and fan for distributing heated or cooled air throughout your home.
  3. The refrigerant lines connect the outdoor and indoor units and circulate the refrigerant that carries the heat.
The best bit is because heat pumps use natural energy sources, you save money on your bills long into the future.

Benefits of an Energy-Efficient Heat Pump

There are several benefits to having a heat pump installed, including:

Lower Utility Bills

Heat pumps use less energy than other heating systems, so you can save money on your energy bills each month. Combined with the available rebates and tax credits, this is a great way to save money now and in the future.

State Requirements

Many states are adopting zero-carbon emissions policies, which require homeowners begin to use greener forms of energy. Get in touch with your local energy office to find out more about the requirements.


Switching to a heat pump means burning less fuel and using natural sources to heat your home. This positively impacts the environment and will help slow the effects of climate change.

Which Systems Qualify?

There are a few rules and regulations to follow when purchasing a heat pump or HVAC system within the tax credit and rebates savings system.

Energy Star Systems

To be sure of getting the best energy-efficient heat pump, always check that it comes with an Energy Star Certification. This certificate guarantees the product has undergone testing overseen by the EPA, which uses over 500 approved labs.

Different Systems Covered

If you don’t know whether a heat pump is a suitable option for you, you can choose a replacement installation of your HVAC, furnace, or boiler. But bear in mind that these replacement systems must also meet the energy-efficiency criteria.

CEE Tier 1 & 2 Requirements

You can’t go out and buy any heat pump. If you want to be eligible for the rebates on heat pump purchase, the heat pump must fall within Tier 1 or 2 of the Consortium of Energy Efficiency (CEE). And you must also match the income requirements of the rebate system.

What Federal Tax Credits Are Available?

Tax 25C

This tax credit is a nonbusiness property energy credit. It allows you to claim up to 30% capped tax credit for installing energy-efficient products like heat pumps, water heaters, and electric panels or for carrying out energy audits. The excellent news about this credit is that it’s not a lifetime credit. It renews yearly. Anyone with adequate tax liability to offset can qualify for Tax 25C.

Tax Credit Amounts

There are various amounts allocated to different products and appliances. The principal payments being as follows:
  • Heat Pumps – up to $2,000
  • Air Conditioners – up to $600
  • Furnaces – up to $600
There are other credits available for energy audits and weatherization products. Check out the full list of available credits to find out how you can benefit.

HEEHRA Act Energy Efficiency Rebates

Wondering how to pay upfront for a new heat pump? The good news is that if you’re a lower-income household (80% below the average income in your area), you qualify for a full rebate on your heat pump. That’s an incredible $8,000. Even better, it’s hoped that these HEERA rebates will be given upon purchase rather than as a refund. You can also benefit from HEERA rebates for other products, including:
  • Electric stove/cooker top $640
  • Electric wiring $2,500
  • Weatherization $1,600
  • Heat Pump Water Heater $1,700
It’s hoped that all, regardless of income, can move towards more sustainable energy sources.

Save More with Local Energy Rebates

If you’re making the switch to greener energy sources, there are plenty of ways to save money. In addition to federal incentives, many state energy offices offer their own incentives and rebates for homeowners. It’s worth checking out your local area to see if any additional grants or financial options are available to you. And if you’re in the market for Energy Star Certified products and appliances, the Energy Star Rebate Finder is a great way to find rebates you may be eligible for.

Combining State and Federal Rebates

Although individual states offer financial incentives and rebates, it’s still a little unclear whether they can always be combined with the federal tax credit and rebates savings. At present, you can claim the State rebate as long as it isn’t funded with Federal money. It will take time for both systems to align and create more precise regulations.

How to Apply for Tax Credits and Rebates

When switching to an energy-efficient appliance like a heat pump, you need to know whether you qualify for a tax credit or a rebate before purchasing. Firstly, HEEHRA rebates are exclusively available to low or moderate-income households only. They’re designed to reduce the project’s cost at the time of purchase. The contractor handles the administration; you get a discount, making it a hassle-free process for you. However, if your income exceeds the rebate eligibility requirements, don’t fret. You can still use a tax credit worth up to 30% of the cost. Rather than directly reducing costs, you’ll pay the total amount during installation and replacement. Once the work is completed, you can claim the credit on your tax return, resulting in a smaller tax bill or a larger refund. Is the tax credit system ‘taxing’ your brain? Tax forms are complicated little blighters, so we recommend seeking the advice of your tax consultant. That way, you can rest assured you’ll get the correct amount you’re eligible to claim. Want to find out more about Federal Energy-Efficient heat pumps? Contact the HVAC pros at Moore Home Services for expert advice and information.