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An energy upgrade for the home that is about to become a climate and financial winner

Heat pumps are becoming increasingly popular for homes with rising energy prices and the need to reduce the use of fossil fuel heating systems.

Andrew Aitchison | In pictures | Getty Images

Are you thinking about a heat pump for your home? New and expanded government incentives, combined with sharply rising energy costs, make it more compelling.

Especially when used in conjunction with clean power sources like rooftop or community solar, a heat pump—a simple electrical appliance that can replace a homeowner̵[ads1]7;s traditional air conditioning and furnace system—can heat and cool a home with less damage to the planet.

These investments also become more attractive to consumers, given the heavy hand of inflation. A whopping 87% of U.S. homeowners surveyed said they experienced higher prices in at least one household service or utility category during the summer, according to There’s another possible bonus: incentives are offered through the recently passed Inflation Reduction Act of 2022.

“These incentives not only save you money now and in the long run on your utility bills, but they put our economy on track to reduce the consumption of fossil fuels that contribute to climate change,” said Miranda Leppla, director of environmental law. Clinic at Case Western Reserve University School of Law. “It’s a win-win.”

The use of heat pumps will become more common as the authorities legislate that they are to be used. Washington State recently mandated that new homes and apartments be built with heat pumps. In July, California Governor Gavin Newsom announced a goal of 3 million climate-ready and climate-friendly homes by 2030 and 7 million by 2035, supplemented by 6 million heat pumps by 2030.

Here are four important things to know about upgrading your home to a heat pump system.

Heat pump cost, savings and efficiency considerations

Heat pumps are suitable for all climates and are three to five times more energy efficient than traditional heating systems, according to Rewiring America, a nonprofit focused on electrifying homes, businesses and communities.

Instead of generating heat, these units transfer heat from the cool outdoors to the warm indoors and vice versa in hot weather. Heat pumps rely on electricity instead of natural gas or propane, both of which have a higher carbon footprint than renewable electricity like wind or solar, said Jay S. Golden, director of the Dynamic Sustainability Lab at Syracuse University.

With installation, heat pumps can range from about $8,000 to $35,000, depending on factors such as the size of the home and the type of heat pump, according to Rewiring America, but it estimates the savings can add up to hundreds of dollars per year for the average household. Also, it’s a long-term play, since heat pumps that most people would consider installing have an average lifespan of 10 to 15 years, according to Rewiring America.

Electricity costs also tend to be more stable, insulating consumers from gas price volatility, said Joshua Skov, a business and government consultant on sustainability strategy who also serves as an industry mentor and instructor at the University of Oregon.

“Although there is an upfront cost, millions of homeowners would save money with a heat pump over the life of the unit,” he said. “You’ll save even more with the federal government covering a portion of the upfront costs.”

An energy upgrade for the home that is about to become a climate and financial winner

incentives for the Inflation Reduction Act

The Inflation Reduction Act — an expansive climate protection effort by the federal government — includes several incentives to lower the cost of energy-saving property improvements. Those incentives significantly exceed what is available to homeowners today, said Jono Anzalone, a lecturer at the University of Southern Maine and executive director of The Climate Initiative, which empowers students to tackle climate change.

For low-income households, the Inflation Reduction Act covers 100% of the cost of a heat pump, up to $8,000. For moderate income households, it covers 50% of your heat pump costs, up to the same dollar limit. Homeowners can use a calculator — such as one available from Rewiring America — to determine if they qualify.

If you’re considering multiple green home improvements, remember that the law’s general threshold for “qualified electrification projects” is up to $14,000 per household.

Federal Tax Credits for Homeowners

For those who exceed the income threshold for a rebate, from Jan. 1 there is the opportunity to take advantage of the non-business energy credit, often referred to as 25C, said Peter Downing, a principal at Marcum LLP who heads the accountancy firm’s tax credits and incentives group.

Homeowners can get a 30% tax deduction for energy efficiency projects in the home such as heat pumps. In a given year, they can get a credit of up to $2,000 to install certain equipment such as a heat pump. That credit will expire after 2032, according to the Congressional Research Service.

Another tax credit can be given to homeowners who buy a geothermal heat pump, which is a more expensive but average long-term option. Homeowners can receive an unlimited 30% tax credit for a geothermal heating installation, according to Rewiring America, which estimates the average geothermal installation costs about $24,000 and lasts twenty to fifty years. That means the average tax credit for this type of pump would be about $7,200, Rewiring America said.

The ventilation system of a geothermal heat pump located in front of a residential building.

Image Alliance | Image Alliance | Getty Images

Regulations for the Inflation Reduction Act are still in progress. But it’s possible eligible consumers will be allowed to receive both a rebate and a credit, Downing said. But the math likely won’t be as simple, based on previous IRS guidance on energy rebates supported by the federal government. Say a consumer is entitled to a 50% discount on a heat pump that costs $6,000. In conjunction with the tax credit, the remaining $3,000 may be eligible for a 30% tax credit, resulting in a possible credit of $900, he said.

State and local financial support

States, municipalities and local utility companies may provide rebates for certain efficient appliances, including heat pumps. “Check with all of them because there are so many different levels of programs, you really need to shop around,” said Jon Huntley, a senior economist at the Penn Wharton Budget Model who co-authored an analysis of the inflation-reduction law’s potential impact on the economy.

Also, be sure to check back often to see what new state, local and utility-based incentives may be available because programs are frequently updated, Golden said. Reputable local contractors should also know about locally available discounts, he said.

Many installers have aggressive financing packages to make heat pump installation more feasible, Anzalone said.

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