Published: February 2026

How to Stack Heat Pump Rebates: Federal + State + Utility

A heat pump installation typically costs between $4,000 and $15,000 depending on the system type, home size, and complexity of the installation. The good news is that federal, state, and utility incentives can often be combined to significantly reduce your out-of-pocket cost. This guide explains how to stack these incentives and provides real-world savings examples.

Layer 1: Federal Tax Credits (Section 25C)

The Section 25C Energy Efficient Home Improvement Credit provides a tax credit of 30% of the cost of a qualifying heat pump, up to $2,000 per year. This applies to both air-source and geothermal heat pumps that meet the relevant ENERGY STAR efficiency requirements. The credit is claimed on your federal tax return using IRS Form 5695.

Important: This is a nonrefundable tax credit, meaning it can reduce your tax liability to zero but cannot result in a refund. If your total tax liability is less than $2,000, you will only receive the credit up to your liability amount. You cannot carry forward unused portions of this credit.

Layer 2: State HOMES or HEAR Rebates

If your state has launched its HOMES or HEAR rebate program, you may be eligible for additional point-of-sale rebates. Under the HEAR program, income-qualifying households (at or below 150% of area median income) can receive up to $8,000 for a heat pump installation. Under the HOMES program, rebates range from $2,000 to $4,000 based on energy savings achieved.

These rebates are applied at the point of sale in many states, meaning the rebate is deducted from your project cost before you pay. In other states, you may receive a rebate check after installation. Check your state's rebate page for current program details.

Layer 3: Utility Incentives

Many local utilities offer their own rebates for heat pump installations on top of federal and state programs. These typically range from $300 to $3,000 depending on the utility and the system type. Utility rebates are usually applied for separately through your utility company, often requiring proof of purchase and installation by a licensed contractor.

Common utility rebates include incentives for duct sealing and insulation improvements done in conjunction with a heat pump installation, which can add another $200 to $1,000 in savings.

Real-World Savings Example

Consider a homeowner in a state that has launched its HEAR program, with a household income below 80% of area median income, installing a cold-climate air-source heat pump at a total cost of $12,000:

• HEAR point-of-sale rebate: $8,000 (maximum for low-income)
• Section 25C tax credit: $1,200 (30% of remaining $4,000 out-of-pocket cost)
• Utility rebate: $800 (typical utility incentive)
• Total incentives: $10,000
• Final out-of-pocket cost: $2,000

For a moderate-income household (80-150% AMI) installing the same $12,000 system with a 50% HEAR rebate:

• HEAR point-of-sale rebate: $4,000 (50% of eligible costs for moderate income)
• Section 25C tax credit: $2,000 (30% of remaining $8,000, capped at $2,000)
• Utility rebate: $800
• Total incentives: $6,800
• Final out-of-pocket cost: $5,200

Important Considerations

Not all incentives can always be stacked. In some cases, a state rebate may reduce the eligible cost basis for the federal tax credit. The IRS has issued guidance that point-of-sale rebates under the IRA (HOMES and HEAR) are generally not considered taxable income and do not reduce the cost basis for the Section 25C credit. However, consult a tax professional to confirm how this applies to your specific situation.

Additionally, some utility programs have limited funding and may close enrollment once allocated funds are exhausted. Apply for utility rebates early in the process, ideally before purchasing equipment, to ensure funds are still available.

Get Your Personalized Estimate

Every household's situation is different. Ask our AI assistant for a personalized breakdown based on your ZIP code, income level, and planned upgrades. You can also browse our heat pump rebates page for more details on available programs.