Inflation Reduction Act Guidebook

2023

Heat Pumps Tax Credit for 2023

This tax credit is effective for products purchased and installed between January 1, 2023, and December 31, 2032.

Last year $370 Billion was put aside for climate and energy programs with the signing of the Inflation Reduction Act (IRA). Along with the updates to the IRA comes quite a large increase in limits and even an extension of the Energy Efficiency Home Improvement Tax Credit. This Federal tax credit allows homeowners to claim 30% of the cost of qualifying energy improvements with an annual limit of $2000. Meaning, you can claim the cost of those energy improvements made on your home, year after year.

What Products are Eligible? (See Definitions)

For heat pumps, ENERGY STAR offers a general certification and a cold climate certification.  In general, all ducted heat pumps that have earned the ENERGY STAR label are eligible, as well as certified mini-split systems (non-ducted) with SEER2 > 16, EER2 > 12 and HSPF > 9.  Among the models that earn the ENERGY STAR Cold Climate designation, ducted systems with EER2 > 10 are eligible, and mini-splits with SEER2 > 16, EER2 > 9, and HSPF > 9.5 are eligible. 

Note: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”  The eligibility described above is consistent with this requirement.

Annual Limits on Energy Efficient Home Improvement Tax Credits

In addition to limits on the amount of credit you can claim for any particular equipment installation or home improvement, there are annual aggregate limits.  The overall total limit for an efficiency tax credit in one year is $3,200.  This breaks down to a total limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus furnaces, boilers and central air conditioners.  Any combination of heat pumps, heat pump water heaters and biomass stoves/boilers are subject to an annual total limit of $2,000. (Note: ENERGY STAR certified geothermal heat pumps are eligible for a separate tax credit and not counted against these limits.)