The Federal Heat Pump Tax Credit Is Gone. Here Is What Still Pays in 2026

WASHINGTON — The federal tax credit that paid up to $2,000 toward a new heat pump is gone for 2026 installations. The 2025 federal budget law ended the Section 25C Energy Efficient Home Improvement Credit for property placed in service after December 31, 2025, with no phase-out. Substantial money is still available, but it now comes from state rebate programs, utilities and a handful of state tax credits, and you have to find it yourself.

What happened

Section 25C, expanded by the Inflation Reduction Act in 2022, offered 30 percent of the cost of qualifying improvements, capped at $2,000 per year for heat pumps, heat pump water heaters and biomass equipment, plus up to $1,200 for insulation, windows and similar items. Public Law 119-21, signed July 4, 2025 and commonly called the One Big Beautiful Bill Act, terminated the credit for property placed in service after December 31, 2025. The companion Section 25D Residential Clean Energy Credit, which covered geothermal heat pumps, solar and batteries at 30 percent, ended for expenditures after the same date.

The cutoff is a cliff, not a ramp. There is no reduced-rate transition and no grandfathering for equipment purchased or deposited on in 2025 but installed in 2026. “Placed in service” means the system was installed and operating, so a heat pump that went live on December 30, 2025 qualifies and one started up on January 2, 2026 does not.

If you did install in 2025, you can still claim the credit on your 2025 return using Form 5695. For 2025 installations the IRS also requires the manufacturer’s qualified manufacturer identification number (QMID, sometimes called a PIN) for each item, so keep the installer’s paperwork.

Why it matters

For a typical $12,000 to $20,000 ducted heat pump installation, the $2,000 credit covered 10 to 17 percent of the bill. Losing it shifts the math, especially in mild climates where a heat pump competes with a cheap gas furnace on running costs; our guide to whether a heat pump is right for your home covers that trade-off. It also shifts the search. Federal money was uniform; what remains is a patchwork that differs by state, utility and household income.

The biggest surviving pieces are the two federally funded, state-run Home Energy Rebate programs created by the same 2022 law. The Home Electrification and Appliance Rebates program — now referred to by its statutory name, High-Efficiency Electric Home Rebates (HEEHR) — provides point-of-sale rebates to low- and moderate-income households: up to $8,000 for a heat pump for space heating and cooling and up to $14,000 per home across all measures. Important 2026 update: these rebates no longer cover switching away from gas, oil or propane. Households below 80 percent of area median income can have up to 100 percent of a project cost covered; those between 80 and 150 percent of area median income, up to 50 percent. The Home Efficiency Rebates (HOMES) program pays for modeled or measured whole-home energy savings, generally $2,000 to $8,000 depending on savings and income.

The rollout is uneven. As of late summer 2026, these programs were live in a number of states, but several have paused or restructured following the 2026 rule change, and some paused after exhausting their reservations. Rather than trust any list, check your own state energy office for current status before you plan around a rebate. Several states, among them Ohio, Pennsylvania, Texas, Michigan, Washington, Oregon, Illinois and New Jersey, had announced launches for the second half of 2026, with the rest expected in 2027. California’s programs have already exhausted their initial reservations, a reminder that these are fixed pots of money, not entitlements. Verify status with your state energy office before you count on anything.

Beyond the federal rebates, three other layers persist:

• State and utility rebates. Mass Save in Massachusetts offers whole-home heat pump rebates of up to $10,000, with enhanced amounts for income-qualified households. New York’s NYS Clean Heat and EmPower+ programs pay from about $1,000 to more than $10,000 depending on income and system. Energy Trust of Oregon pays roughly $800 to $1,000 for most homeowners and up to $3,000 for income-qualified ones. Most electric utilities elsewhere offer $200 to $3,000 for qualifying ENERGY STAR or cold-climate models.
• State tax credits. Colorado’s heat pump tax credit continues at $1,000 in 2026 for air-source systems, delivered as a discount by a registered contractor rather than claimed on your return. A few other states have proposed or enacted credits; check your state revenue department.
• Financing. Zero- or low-interest heat pump loans, such as the Mass Save 0 percent HEAT Loan, are common in the Northeast and can be worth as much as a rebate on a large project.

What homeowners should do

1. Check your income tier first. HEAR eligibility is based on area median income for your county and household size. If you qualify, it dwarfs every other incentive.
2. Search in this order: your state energy office (HEAR and HOMES status), your electric utility, your gas utility if you are switching fuels, then your state revenue department for credits. The DSIRE incentive database is a useful cross-check.
3. Stack carefully. HEAR rebates generally cannot be combined with another federal grant for the same measure, but they can usually stack with state and utility rebates, which are typically applied to the invoice in sequence. Ask each program whether it counts other rebates when calculating its own cap.
4. Get contractor eligibility in writing. Most programs require a participating or registered installer and a listed model. Confirm both before you sign, and see what to expect during installation for what a compliant job looks like.
5. Re-run the payback. Use the heat pump cost calculator with your actual rebates, and read our 2026 cost guide for realistic installed ranges. In mild climates without incentives, a well-chosen model from our best budget heat pumps list may make more sense than a premium system.
6. Do not wait for a federal fix. Nothing had replaced the credit as of this writing. Plan around what exists today.