The Heat Pump Tax Credit Expired. Your Contractor's Quote May Still Assume It Didn't.

If you are getting HVAC quotes this fall, there is a decent chance somebody hands you a number that quietly includes a federal tax credit you can no longer claim. The heat pump tax credit in 2026 does not exist at the federal level. Section 25C, the Energy Efficient Home Improvement Credit, and Section 25D, the Residential Clean Energy Credit, both expired on December 31, 2025. They were repealed by the One Big Beautiful Bill Act. Anything installed in 2026 gets nothing from the IRS.

This matters because for three years the arithmetic of replacing a furnace or a water heater ran through that credit. Contractors built it into their sales conversation. Manufacturer marketing built it into rebate sheets. Homeowners built it into the mental math of whether to replace the twenty-year-old air handler now or wait one more winter. That math changed eight months ago and a lot of the sales material did not.

What actually went away

Under 25C, a homeowner could claim up to $3,200 a year, with $2,000 of that reserved for heat pumps and heat pump water heaters and the remaining $1,200 covering insulation, doors, windows, electrical panel upgrades, and efficiency audits. Under 25D, solar and battery storage got 30 percent of project cost with no cap. On a $16,000 ducted heat pump install, the credit was worth $2,000. On a $28,000 solar array, it was worth roughly $8,400.

The install had to be completed by December 31, 2025, not merely contracted or paid for. If your project slipped into January, you did not get the credit either.

What is still there

The rebate programs funded by the Inflation Reduction Act survived, because they are administered by states rather than the tax code. Two matter most. HEAR, the Home Electrification and Appliance Rebate program, offers up to $8,000 toward a heat pump for households under 150 percent of area median income. HOMES pays $4,000 to $10,000 for whole home efficiency work and is not income restricted in most states.

Availability is uneven and genuinely local. New York, Maryland, Wisconsin, Colorado, Washington, Rhode Island, and North Carolina are currently among the more generous, with stacked state and utility programs reaching past $10,000 for income qualifying households. Other states have either not launched, run out of allocated funds, or set their own narrower rules. Utility rebates sit on top of all of this and change quarterly.

So the honest answer for a homeowner replacing a system in 2026 is that the federal credit is gone, the state rebate might be larger than the credit ever was, and the only way to know is to check your specific state program and your specific utility before you sign anything.

The so what

Three practical things.

First, ask any contractor quoting you this fall to show you the incentive line item and name the program. If they say "federal tax credit," that is a red flag about the rest of the quote.

Second, check your state energy office and your utility's rebate page yourself, in that order. Do it before you schedule the install, because most rebate programs require pre approval or a participating contractor and will not pay retroactively.

Third, if your equipment is functional but aging, the replacement decision is now a pure cost of capital question rather than a race against a deadline. There is no expiring incentive pushing you to act this quarter. That is a change worth being deliberate about instead of anxious about.

At Rafter we track equipment age, service history, and the incentive programs that apply where a member actually lives, which is the part homeowners almost never have time to chase down themselves. The tax credit disappearing does not change what your house needs. It changes who is paying for it.