Heat Pump Tax Deductions & Credits

Heat Pump Tax Deductions & Credits
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A heat pump is a system that removes heat from one area and transports it to another. Most heat pumps have dual capability and can cool or heat an area. The unit includes an outdoor and indoor coil and moves gas between the coils on the outside and those on the inside of a house or commercial building. In the winter months, the unit extracts heat from the outside and brings it inside a building. In the summer, it moves heat from the inside to the outside, resulting in a cooler interior. Tax deductions and credits are available with the purchase of a heat pump.

Tax Credit Amount

The Energy Star Program is a program sponsored by the Environmental Protection Agency and the U.S. Energy Department. In addition to providing tax credits, Energy Star also includes a labeling program that identifies energy efficient products. The Federal Government’s Energy Star Program provides a tax credit of 30 percent of the cost of a heat pump with no limit on unit cost or tax credit amount. The installation cost of the unit also qualifies for the credit.

Credit Qualifications and Application

To qualify for the credit, the heat pump must be installed in a primary or secondary home but not in a rental property. Any installed heat pump that is designated as part of the Energy Star Program is eligible for the credit. To apply, file IRS form 5695, “Residential Energy Credits,” with your tax return.

State Programs

Check your local state laws to learn about additional tax credits for heat pump installations. For example, New Mexico’s legislative bill HB 75 created a tax credit for heat pumps as part of a state incentive for energy renewal and efficiencies. New Mexico provides a 30 percent credit for heat pumps priced up to $9,000. To get a credit, systems must have a minimum coefficiency performance of 3.4 or an energy efficiency ratio of 16.

Corporate Tax Credits

Businesses are also offered incentives for heat pump installations. For example, a federal corporate tax credit is available to commercial, industrial, utility and agricultural organizations. A 10 percent credit is provided for heat pumps as authorized by Internal Revenue Tax Code Title 26, Section 48.