The Heat Pump Tax Credit Ended: What It Did to Payback
What the credit was, and when it ended
The Energy Efficient Home Improvement Credit, Section 25C of the tax code, credited 30% of the cost of a qualifying heat pump, up to $2,000 a year. Public Law 119-21, signed July 4, 2025, ended it for property placed in service after December 31, 2025. A heat pump installed and placed in service by that date can still be claimed on the 2025 return, using IRS Form 5695; one installed in 2026 cannot. The IRS's Energy Efficient Home Improvement Credit page has the details, and a tax professional can confirm your own situation.
How much it moved the numbers
Every figure on this site now assumes no federal credit. Running the same model with and without it shows the effect: the credit did not change anyone's yearly running costs, only the upfront cost, so it mattered most where the saving was already positive but modest. Without it, 790 of the 3,206 cities covered go from paying back within the 15-year equipment life to not doing so. In San Diego, CA, for example, the extra cost of going electric rises from $1,000 to $3,000, and the payback from 14.3 to 43 years.
Where it never mattered
In the 1,214 cities where a heat pump costs more to run than a gas furnace, the credit never created a payback, because a lower purchase price cannot be recovered from a saving that does not exist. The no-payback guide covers those cities.
What can still lower the upfront cost
Some states and utilities run their own heat pump rebates or low-interest financing, and the amounts, eligibility rules and funding change often. ENERGY STAR's rebate finder and DSIRE, a database of state incentives, are good places to start, along with your utility's own website. Ask each contractor which programmes they have installed under recently, and whether the rebate is paid to you or taken off the invoice. Timing also matters: replacing a furnace and AC that have already failed means the comparison is against a like-for-like replacement, which is how every city page on this site prices it.