Heat pump tax credit 2026: the federal credit is gone. Here's what still cuts the cost, and how to finance the rest

What changed, in plain English

The Inflation Reduction Act had set the 25C credit to run through 2032. The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) cut that short. The IRS's own FAQ on the law states that the energy efficient home improvement credit is not allowed for any property placed in service after December 31, 2025. The same law ended the Section 25D residential clean energy credit (the 30% credit for solar, batteries and geothermal heat pumps) for expenditures after December 31, 2025, and the Section 30C EV charger credit for property placed in service after June 30, 2026.

"Placed in service" is the test that matters. A heat pump installed and running on December 29, 2025 qualifies; one installed on January 3, 2026 does not, even if you signed the contract and paid a deposit in 2025. There is no 2026 column on Form 5695 for these credits.

If your heat pump or furnace went in during 2025: claim it now

You haven't lost anything if the system was placed in service on or before December 31, 2025. Claim it on your 2025 federal return (the one you file in early 2026) using IRS Form 5695, Part II. The 2025 amounts were 30% of eligible cost up to $2,000 for a qualifying air-source heat pump or heat pump water heater, and up to $600 each for an efficient central air conditioner, furnace or boiler, within a combined annual cap of $3,200 that also covered insulation, windows, doors and panel upgrades.

Keep the installer's invoice showing the equipment model numbers and the date placed in service, and the manufacturer's certification statement if the installer provided one. If the credit exceeds your 2025 tax liability, the unused part is lost: 25C was non-refundable and did not carry forward.

What still reduces a 2026 heat pump or HVAC bill

• Utility rebates. Most electric and gas utilities still run rebate programs for high-efficiency heat pumps, furnaces and air conditioners, funded through their approved efficiency budgets rather than the federal tax code. Amounts vary widely, from a couple of hundred dollars to over a thousand for cold-climate heat pumps, and are usually paid to you or taken off the invoice by a participating contractor.
• State and local programs. Several states and cities offer their own heat pump incentives, low-interest energy loans or on-bill financing through the utility.
• HEAR and HOMES rebates. The federal Home Energy Rebates were funded as grants to state energy offices, so the 2025 law did not take that money back. Where a state has launched its program, the Home Electrification and Appliance Rebate (HEAR) can cover a large share of a heat pump for income-eligible households, and HOMES rebates reward measured whole-home savings. Availability depends entirely on your state's rollout; check your state energy office.
• Manufacturer promotions. Seasonal rebates and dealer financing promotions on specific equipment, usually through the brand's bank partner.

Every dollar here reduces the amount you finance, which matters more now that the federal $2,000 is gone.

What the lost $2,000 does to the monthly math

Take a $14,000 cold-climate heat pump replacing an old furnace and AC. In 2025, a $2,000 credit and a $1,000 utility rebate brought the real cost to $11,000. In 2026 the same job with the same rebate is $13,000. Financed over 84 months at an illustrative 9.99% APR, that's about $183 a month versus $216: roughly $33 more each month, or about $2,788 over the loan including interest.

That's real money, but it rarely changes the heat pump versus furnace decision on its own. What decides it is your climate, your electricity and gas prices, and how long you'll stay. Run both quotes through the HVAC financing calculator and compare the monthly difference with the contractor's estimated energy saving.

Illustrative only. The credit was 30% of cost up to $2,000; rebate amounts vary by program. Lenders set real rates.

Heat pump or furnace in 2026? The honest version

With the credit gone, the up-front gap between a high-efficiency furnace and a cold-climate heat pump is wider than it was. A heat pump still wins on running cost in mild and moderate climates and anywhere electricity is cheap relative to gas; in very cold regions a dual-fuel setup (heat pump with a gas furnace backup) is the common compromise. If your AC is also near the end of its life, replacing both with one heat pump often costs less than two separate jobs and qualifies for the larger utility rebates. If only the furnace has failed, a like-for-like furnace is the smaller, faster, cheaper fix, and our guide to emergency furnace replacement covers that decision in detail.

How to pay for a heat pump or HVAC system now

Four routes cover nearly every job. The contractor's financing plan is presented at the quote with a soft-pull pre-qualification; ask whether a promotional rate is deferred interest and whether the price is the same for cash. An unsecured HVAC loan you arrange yourself funds in days and pays any contractor like cash. Utility on-bill financing, where offered, adds the payment to your electric bill, sometimes at low rates. A home equity loan or HELOC suits a whole-house electrification project if you have equity and time. Our HVAC financing page compares them with example payments; if your credit is on the lower side, start with HVAC financing with bad credit.

Timing: why November still matters

Three reasons to move before winter rather than after a January failure. Contractors have capacity now and quote more competitively than during the first cold snap. Utility rebate budgets are often annual and some run out before December. And a planned install lets you check options with a soft pull from two or three sources instead of signing whatever is on the tablet at 9 pm. If your system is past 15 years and showing its age, get two quotes this month, run the rebate finder in the checklist below, and finance only what's left.

Questions to ask the contractor

1. Which utility, state or HEAR/HOMES rebates does this equipment qualify for, and will you file them or do I?
2. Is the quote a matched system sized from a load calculation (Manual J)?
3. What is the price for cash or with my own lender, and what is it on your plan?
4. Is your promotional rate deferred or waived interest?
5. What is the cold-climate heating capacity at my design temperature, and is backup heat included?
6. What warranty covers parts and labor, and who registers it?

Questions to ask every lender

1. What is the APR including fees, and is the rate fixed?
2. Is there an origination fee, and is it deducted from the loan amount?
3. Is any promotional period deferred interest or waived interest?
4. Is there a prepayment penalty?
5. When is the contractor paid, and when does my first payment start?
6. Does checking my options use a soft or hard credit inquiry?

Frequently asked questions