The Inflation Reduction Act in 2022 includes key provisions to make American homes and businesses more energy efficient. The provisions give property owners opportunities to save money on specific upgrades that improve energy efficiency. The previous Residential Clean Energy Credit offered by the Internal Revenue Service (IRS) focused mostly on solar energy and geothermal systems. The 2022 act expands the upgrades to cover more equipment, including heating, ventilation, and air conditioning (HVAC) solutions.
Heat pumps are on the list of HVAC equipment marked by the Inflation Reduction Act for federal tax credits. This is a 10-year plan with gradual implementation, so the credits for heat pumps are new. The credits started on Jan. 1, 2025; however, not all brands or models qualify.
Understanding the New IRS HVAC Tax Credits
Essentially, the Inflation Reduction Act introduces and modifies various tax credits that lower the carbon footprint of American residential and commercial properties. These credits aim to incentivize home and business owners to adopt sustainable, energy-efficient practices.
Regarding HVAC, the Residential Clean Energy Credit (25D) started with geothermal heat pump systems. The expansion to electricity-powered heat pumps is covered by the new Energy Efficient Home Improvement Credit (25C). The improvements now include many air-source heat pumps that meet specific criteria. Other 25C improvements include energy audits, insulation, and weather stripping of exterior-facing doors and windows. The credit has specific requirements for the efficiency ratings of the equipment and materials. Here, we will focus on residential HVAC solutions that qualify for the new 25C credit.
Tax credits for installing heat pumps are subject to annual aggregate limits. The total annual credit limit is $3,200. There’s a $1,200 limit for combined expenses, which may include windows, doors, skylights, and insulation. With heat pump systems, including those that pair with a furnace, the annual aggregate limit is $2,000. the credit does not apply to properties that the IRS designates as second homes. The credits are only for primary residences, not vacation homes or rentals.
You can plan energy-efficient upgrades to maximize your tax credits over multiple years. Since there are annual limits, spreading them would allow you to claim more overall. Let’s say you plan on replacing an old HVAC system with a heat pump. The best way to claim the credit would be to first improve your attic insulation, thus reducing energy waste. This strategy lets you claim up to $1,200 for insulation and $2,000 for the heat pump in the same year.
You can also combine a heat pump installation with window and door replacements. With this strategy, you can get $2,000 for the heat pump and up to $600 for windows and skylights. You would have $500 worth of credit left to claim for adding weather stripping to the doors. You could replace your water heater the next year, thus claiming another 30% credit up to $2,000.
The IRS sets efficiency standards to qualify for these tax credits. Not all heat pumps meet them. Certified professionals must install the qualified equipment, so Meade’s Heating and Air can take care of this requirement. There are limits on how much you can claim, both annually and over the lifetime of the credit. You must keep records of purchases and installations to support any tax credit claims.
Which Heat Pumps Qualify for the 25C Tax Credit?
Air-source heat pumps are now within the purview of the credit. Since Jan. 1, 2025, you have been able to claim tax credits for highly efficient systems. To qualify, the unit must have an ENERGY STAR Most Efficient certification. This includes equipment designed for cold climates (ENERGY STAR Cold Climate) and systems paired with a furnace. You can choose either heat pump type in Northern Virginia because the new credit eliminates previous regional restrictions.
ENERGY STAR Most Efficient Heat Pumps
The Most Efficient certification represents the pinnacle of energy efficiency for each product category. For air-source heat pumps, the certification means the unit surpasses ENERGY STAR standards. The designation is for heating and cooling.
The U.S. Environmental Protection Agency (EPA) sets the criteria for energy-efficient heat pumps. The factors include the seasonal energy efficiency ratio (originally SEER, SEER2 since Jan. 1, 2023), heating seasonal performance factor (HSPF), and coefficient of performance (COP). With these metrics, the EPA measures the efficiency of HVAC systems for energy savings.
SEER2 measures the cooling efficiency of a heat pump over a typical cooling season. A high SEER2 is what you want to see when selecting a heat pump that would qualify for the 25C credit. HSPF measures the heating efficiency over an average heating season. A higher HSPF means improved performance and lower energy consumption. COP is a performance ratio at specific operating conditions. It essentially shows how heat pumps perform with each unit of electricity consumed.
Variable-speed or inverter-driven heat pumps are more likely to receive ENERGY STAR Most Efficient certifications. With this advanced technology, heat pump systems modulate their operating speed to match the precise heating or cooling demand. This eliminates the on/off cycling of single-speed compressors, thus delivering consistent temperatures and reducing energy waste.
By operating at lower speeds for extended periods, variable-speed heat pumps promote higher efficiency during partial-load conditions. New heat pumps are invariably equipped with smart thermostats, thus making the variable-speed mechanism more precise and efficient.
ENERGY STAR Cold Climate Heat Pumps
This program issues a certification that addresses the unique challenges of heating in regions with consistently low temperatures. Our service area has experienced harsh winters in recent years, and this climate trend will likely continue. The certification goes beyond the standard ENERGY STAR requirements for subfreezing conditions.
An ENERGY STAR Cold Climate-certified heat pump can extract heat from the outside air even when temperatures dip below freezing. Enhanced compressor designs improve heat exchangers and incorporate sophisticated control systems. Traditional heat pumps lose much of their heating capacity as temperatures drop. Some of our past clients with legacy heat pumps were forced to get space heaters for the bedrooms. This electric-resistance heat solution goes against the principles of energy efficiency. Cold Climate heat pumps eliminate this issue.
To qualify for Cold Climate certification, heat pumps must deliver high HSPF values, particularly in cold temperature test conditions. This ensures that the heat pump can deliver heat throughout the winter while reducing energy consumption. These systems typically have advanced defrosting systems to prevent frost from forming on the outdoor coil. Variable-speed compressors are crucial for Cold Climate heat pumps; they allow the system to match the smart thermostat settings.
With more than three decades of HVAC experience, Meade’s Heating and Air offers a full range of heating service solutions to homeowners in Northern Virginia. Our Lennox product line includes various heat pump models that qualify for the federal 25C and 25D tax credits. To make your heat pump investment more advantageous and convenient, we offer maintenance service agreements on all HVAC systems. We are your top choice for HVAC installations, upgrades, maintenance, and repairs.
To get more information about tax credits for new heat pumps in Sterling and throughout Northern Virginia, contact Meade’s Heating and Air today.
