Up to $2000 in Federal Tax Credits for Heat Pumps and Air Conditioners [2023]

Is Your Air Conditioner or Heat Pump Eligible for a Federal Tax Credit?

Did you buy a new air conditioner or heat pump for your home? You might qualify for a tax credit. These tax credits cover a wide range equipment like air conditioners, heat pumps, and heat pump water heaters, as well as upgrades to the home envelope like doors, windows, insulation, etc. You can apply for these credits on equipment installed between January 1, 2023 and December 31, 2032.

You can find information about the tax credits for air conditioners and heat pumps purchased in 2022 or earlier here.

Federal Tax Credit Overview

Annual Limits: 30% of the project cost up to a $3,200 annual maximum for all energy efficiency improvements claimed under this credit, subject to aggregate limits. This breaks down to:

• Up to $2,000 annual limit toward the purchase of any combination of air source heat pumps, heat pump water heaters, and biomass stoves/boilers.
• Up to $1,200 annual limit toward the purchase of any combination of central air conditioners, furnaces, boilers, plus other home improvements like windows, doors, etc. 
• There are per-project limitations as well. Below, we’ll talk about the tax credits available for air conditioners and heat pumps. For further details about tax credits for other types of energy efficient home improvements, visit energystar.gov.

Dates: Equipment must be purchased and installed January 1, 2023–December 31, 2032.

Property Requirements: Equipment must be installed in an existing home and your principal residence (the place you occupy most of the time). New construction and rentals do not apply. There are also certain restrictions if you use your home for business. Your principal residence must be in the United States and may be a house, houseboat, mobile home, cooperative apartment, condominium, or a manufactured home to qualify. 

Pro Tip: To make the most of the tax credits, spread your energy efficiency improvements over a few years. The $3,200 annual limit and any aggregate limits reset each year through 2032. You can find ways to mix and match the tax credits for maximum savings by looking at your options on the ENERGY STAR website.

PLEASE NOTE: These credits are nonrefundable. You can’t receive more than you owe in taxes, and you can’t apply any excess credit to future tax years. Also, you may need to subtract certain rebates, public utility subsidies, or other financial incentives when declaring your qualifying expenses. Consult with your accountant or another tax professional to ensure that you meet all the requirements necessary to receive tax credits for your air conditioner or heat pump upgrade. Additionally, you can ask Kobie Complete (or your local HVAC contractor) for details about your equipment to verify its eligibility.

Air Conditioner and Heat Pump Tax Credit Details

Central Air Conditioners:

• You can claim 30% of the project cost, up to a $600 maximum credit.
• The air conditioner must meet the following efficiency requirements:
  • Split Systems: ENERGY STAR certified* equipment with SEER2 ≥ 16
  • Packaged Systems: All ENERGY STAR certified systems are eligible.

Air Source Heat Pumps:

The efficiency requirements below apply only to equipment installed in the southern United States. For northern US efficiency requirements, visit ENERGYSTAR.GOV.

• You can claim 30% of the project cost, up to a $2,000 maximum credit.
• The heat pump system must meet the following efficiency requirements:
  • Ducted Split Systems: All systems that have earned the ENERGY STAR label are eligible.
  • Ductless Mini-Split (Non-Ducted) Systems: ENERGY STAR certified equipment with SEER2 ≥ 16, EER2 ≥ 12, HSPF2 ≥9.

About Energy Efficiency Ratings

A new system for rating the energy efficiency of air conditioners and heat pumps also came into effect on January 1, 2023. SEER2 (Seasonal Energy Efficiency Ratio 2), HSPF2 (Heating Seasonal Performance Factor 2) and EER2 (Energy Efficiency Ratio 2) have replaced the previous rating system, SEER, HSPF, and EER. For more information about this change and its impacts on HVAC equipment, please refer to our blog post 2023 AC Energy Efficiency Standards: What You Need to Know.

How Do I Apply?

To claim energy efficiency home improvement tax credits, fill out and file IRS form 5695, Residential Energy Credits with your tax return.

Tax credits are administered by the IRS, and the credit amounts you may receive are subject to IRS regulations. Therefore, we highly recommend consulting a tax professional for advice on tax preparation and your tax credit eligibility. For more information about the tax credit, you can also visit IRS.gov.

What Other Equipment Qualifies for a Tax Credit?

Even if you don’t plan on upgrading your heating & cooling system, you might intend to purchase another qualifying household appliance like a heat pump water heater.  You can see the entire list of qualifying home improvements here. There are also separate tax credits available for renewable energy home improvements, like wind, solar, and geothermal. These upgrades do not count toward the $3,200 annual maximum under the energy efficiency tax credits.

There are also separate tax credits available for home builders and commercial buildings.

DISLCAIMER: The tax credit information contained within this website is provided for informational purposes only and is not intended to substitute for expert advice from a professional tax/financial planner or the Internal Revenue Service (IRS). The information is subject to change, and Kobie Complete does not guarantee the accuracy of the information provided. For the most updated information on the federal tax credits, visit energystar.gov or IRS.gov.

*NOTE FROM ENERGY STAR: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year. The eligibility requirements are subject to change based on the final CEE Criteria and the Internal Revenue Service (IRS).” 

Last Updated: January 3, 2024