Heat Pump Tax Credit in 2026: What Ended, What’s Left, and What You Can Still Claim

The federal credit is gone, and this page is not going to spend two thousand words implying otherwise. If you are researching a heat pump in 2026 you will still find pages telling you geothermal keeps 30% through 2032 — that was the schedule before the law changed in July 2025, and it is now wrong. What follows is what actually ended, who can still file, what took its place, and what the loss of $2,000 does to the numbers. It is not tax advice; confirm your own position with a tax professional.

This page is for three different readers, and the answer is different for each: if your system was installed and finished in 2025, skip to the one group who can still claim. If you are buying now, go to what replaced it and then the recomputed arithmetic. If you are simply trying to find out whether the credit exists, it does not, and the section below explains exactly what happened to it.

What ended, exactly

Two separate credits died on the same date, under the same law.

Section 25C — the energy efficient home improvement credit

This is the one most people mean when they say “the heat pump tax credit”: 30% of the cost of qualifying equipment, capped at $2,000 a year for heat pumps, heat pump water heaters and biomass stoves. The IRS states its scope in the past tense now: the credit “is allowed for qualifying property placed in service on or after Jan. 1, 2023, and before December 31, 2025.” Read that wording alongside the termination itself, which applies to property placed in service after December 31, 2025, so an installation completed on December 31, 2025 still qualifies.

Section 25D — the residential clean energy credit

The 30% credit that covered geothermal heat pumps alongside solar and battery storage. The IRS states plainly that the credit “is not available for any property placed in service after December 31, 2025.”

The law that ended them, and when

Public Law 119-21, the One Big Beautiful Bill Act, enacted July 4, 2025. IRS Fact Sheet FS-2025-05, published August 21, 2025, sets out the effect on each section: for 25C, “the credit will not be allowed for any property placed in service after December 31, 2025”; for 25D, “the credit will not be allowed for any expenditures made after December 31, 2025.”

Why you will still find pages saying “30% through 2032”

Because that was true when those pages were written. The Inflation Reduction Act extended 25D at 30% through 2032 with a step-down after, and a great deal of content was published on that schedule between 2022 and 2025. The 2025 law superseded it. If a page tells you the credit runs to 2032 and does not mention Public Law 119-21, it has not been updated since before July 2025 — that is the fastest way to check any incentive page you find, including this one.

The one group who can still claim: 2025 installations

If your installation was completed on or before December 31, 2025, you have a claim. The details below are the ones that decide borderline cases.

The placed-in-service test, and why the invoice date is not the test

For an installation, the IRS treats the expenditure as made when the original installation is completed, not when you signed the contract, not when you paid the deposit, and not when the equipment was delivered. This is the single most useful paragraph on this page for anyone who bought around the turn of the year.

Carryforward, and this differs between the two credits

People conflate these constantly, so here they are separately, from the IRS’s own current pages:

• Section 25C is nonrefundable and cannot be carried forward. The IRS: “The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years.” If your 2025 tax liability was smaller than the credit, the excess is simply lost.
• Section 25D is nonrefundable but can be carried forward. The IRS: “You can carry forward any excess unused credit… and apply it to reduce the tax you owe in future years.”

That asymmetry matters most to households with low tax liability, who may find the air-source credit worth far less to them than its headline suggests. It is also exactly the kind of detail worth putting to a tax professional rather than settling from a web page.

Which form, and what to keep

Both credits are figured and claimed on IRS Form 5695, Residential Energy Credits. Keep the itemized invoice, proof of payment, and documentation showing the date the installation was completed. One more requirement catches people out on 2025 claims specifically: the IRS states that in 2025, “for each item of qualifying property placed in service, no credit will be allowed unless the item was produced by a qualified manufacturer” — with a product identification number to be reported. If your installer has not given you that, ask for it before you file.

What replaced it: state and utility money

Nothing federal replaced it. What exists is local, and in some cases it is now worth more than the credit was.

Why some utilities raised their rebates specifically to fill the gap

This is not an inference. SMUD, the Sacramento municipal utility, increased its residential heat pump rebates in February 2026 and stated that the increase was made to offset the recent expiration of federal tax credits and state incentive programs. When a utility says out loud that it is filling a federal hole, it is worth checking whether yours has done the same.

What is available in California

Two verified examples, both checked in August 2026. Treat every figure here as a starting point for your own confirmation — these programs are funding-limited, they change often, and eligibility usually depends on the specific equipment and on using a participating contractor.

• SMUD (Sacramento). Up to $3,000 for a variable-stage heat pump HVAC system replacing gas, and $2,000 for a two-stage system meeting a 15.2 SEER2 minimum on the same gas-to-electric conversion. An electric-to-electric upgrade to a multi-stage heat pump is $1,000. A panel-upgrade bonus of up to $2,000 is available alongside a gas-to-electric conversion. Rebates are subject to funding availability and must be submitted by a qualified participating contractor.
• LADWP (Los Angeles). Up to $2,500 per ton for heat pump HVAC — central, split, mini-split and multi-split — with amounts increased for equipment purchased and installed on or after November 1, 2025. Applications must be postmarked within 12 months of purchase and the applicant must be an LADWP residential customer with active electric service. Confirmed open as of August 2026; our automated re-check of the program page on August 20, 2026 was blocked by the site’s bot protection rather than returning a page, so verify the current amount directly before you rely on it.

Note what the SMUD tiers mean in practice: a gas-to-electric conversion with a variable-stage system can be worth more than the $2,000 federal credit ever was. For this particular reader, the credit’s death is not the whole story.

How to find your own utility’s program

1. Go to your electric utility’s own website and look for residential rebates. Your utility is the one on your bill, not the one that serves the nearest big city.
2. Check the gas utility separately if you have one — some run their own HVAC programs.
3. Read three things before you get excited: the equipment requirements (efficiency tier and staging), whether the contractor must be in a specific network, and whether the program is currently funded or waitlisted.
4. Confirm eligibility before the equipment is ordered. Most programs will not pay retroactively for the wrong model, and several require the contractor to submit the application on your behalf.
5. Assume a permit is required. Incentive programs generally expect a licensed contractor and a permitted, inspected installation, which is a concrete financial reason to refuse an unpermitted cash quote, on top of the code reasons.

What losing $2,000 actually does to the decision

The arithmetic, recomputed

Start with the gap the credit used to close. Contractor-reported market rates put a ducted air-source heat pump changeout at roughly $8,000–$13,000 for a 3-ton system, against roughly $4,900–$8,700 for a comparable 3-ton central AC changeout. Both figures assume a matched indoor coil or air handler, standard labor and reuse of sound existing ducts, and both exclude ductwork, electrical or panel upgrades, permit, disposal, line set and backup heat strips. Neither is a sourced figure — no authority publishes installed HVAC prices, and the arithmetic that follows is ours on top of those estimates. For the AC side broken out by tonnage and efficiency tier, see our AC replacement cost guide.

The gap between them runs to roughly three to four thousand dollars. The $2,000 credit used to cover something like half of it. In 2026 the whole gap is yours, unless a utility rebate closes it — which, for a SMUD customer doing a gas-to-electric conversion, it may more than do.

Then there is what it costs to run. Using EIA’s published prices, a 95% AFUE gas furnace delivers a million Btu of heat for about $21 at $2.00 per therm, while a heat pump at a seasonal COP of 3.0 delivers the same for about $32 at 33.25 cents per kWh. That per-million-Btu comparison is our arithmetic from two EIA figures, not a published EIA result. Gas currently wins on running cost in California, and the reason is the one that gets stated backwards everywhere. It is not that California gas is cheap; at roughly $2.00–$2.21 per therm it is among the most expensive in the nation. It is that California electricity, averaging 33.25 cents per kWh against a US average of 18.44, is more expensive still. Any break-even rule of thumb has to be expressed as the ratio of your electricity price to your gas price, never as an absolute gas price.

Where the heat pump still wins without the credit

• When you need heating and cooling equipment anyway. If the furnace and the AC are both at end of life, the comparison is not heat pump versus AC — it is one appliance against two. Contractor-reported rates put a gas furnace and central AC replaced together at roughly $7,000–$14,000, which lands squarely in heat pump territory.
• When there is no gas service, or you are on propane. The furnace side of the comparison changes completely, and usually in the heat pump’s favour.
• When a utility rebate exceeds the lost credit. A qualifying SMUD gas-to-electric conversion is the clearest example in this state.
• When you value the cooling side too. A heat pump is an air conditioner that also runs backwards; you are not buying a heating appliance and paying extra for nothing.

Where it changes the answer

• A working gas furnace and only the AC failing. Here the heat pump premium buys you a heating system you already have, the credit that used to subsidise it is gone, and on California electricity rates the running cost moves the wrong way. This is the case where the recommendation changed in 2026.
• A high-efficiency upsell justified by savings. DOE’s own acquisition guidance puts the maximum premium at which an ENERGY STAR heat pump still pays for itself in its Hot-Dry Southwest region — the region California sits in — at $728, computed at 11 cents per kWh. Scaling that for California’s much higher electricity price gives roughly $2,200, and that scaling is our arithmetic rather than a DOE result. Either way, it is a ceiling, and a premium above it does not pay back. We work through the full method in our 2026 AC replacement cost index.

One thing that has not changed and should not enter this decision: owning an R-410A system is not by itself a reason to replace it. Servicing and recharging an installed R-410A system is legal indefinitely, with no end date. For the fuller comparison, see heat pump vs AC and heat pump vs furnace; for what the equipment costs, our heat pump cost guide.

What to watch for in 2027

Three things, and one thing not to do.

• Congress. A future Congress can restore either credit, and energy tax provisions have been enacted, repealed and restored before. Nothing of the kind is scheduled, and no announced proposal should be treated as money until it is enacted law with an effective date. Do not delay a needed system replacement on the possibility.
• Utility program years. Most rebate programs reset with the calendar or fiscal year, and amounts and funding are set at that point. January is when the following year’s programs become knowable, which makes late winter a sensible time to plan a spring project.
• State programs. California’s statewide incentive landscape has been shifting, and several programs have been funding-limited or waitlisted at various points. Check status rather than availability — a program that exists is not necessarily accepting applications.

And the thing not to do: do not let a contractor quote you a price that assumes a federal credit. If an estimate for 2026 work shows a federal tax credit line, that quote is wrong, and it is a reasonable question to ask what else on it has not been updated since 2025.

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