Here is a summary of how all of these incentives add up for homes in Colorado.
Incentives for Existing Homes
Federal – IRA Tax Incentives and Rebates
Under the Inflation Reduction Act (IRA), heat pumps and heat pump water heaters (HPWHs) are eligible for a 30% tax credit, beginning in tax year 2023, up to a limit of $2,000 per taxpayer. In addition, home energy efficiency improvements are eligible for a 30% tax credit up to $1,200.
To qualify for the tax credits, HPWHs must be ENERGY STAR-certified, and heat pumps must meet the following minimum efficiency requirements:
For Northern States (including Colorado, Utah, Wyoming):
- Must be a cold-climate heat pump (on NEEP list) with min. HSPF and SEER ratings as shown below:
Type of HP system |
SEER/SEER2 |
HSPF/HSPF2 |
|---|---|---|
| Ducted | 16.0/15.2 | 9.5/8.1 |
| Ductless | 16.8/16.0 | 10.6/9.5 |
(Note: For some applications, we might suggest an efficient non-cold climate heat pump that qualifies for a utility/local govt. rebate but does not qualify for the IRA tax credit, e.g., if it is more cost-effective.)
State Tax Incentives
In 2022 Colorado also approved tax credits for heat pumps and HPWHs, beginning in the 2023 tax year. The equipment cost is eligible for a 10% state tax credit, and in addition, is exempt from the state sales tax, which is 2.9%. The heat pump or HPWH must be ENERGY STAR-certified.
Utility and Local Government Rebates
All the rebates for heat pumps and HPWHs from utilities and local governments in Colorado are listed on Love Electric at: loveelectric.org/rebates/. These rebates are in addition to the tax credits and tax exemptions described above.
Summary for Existing Homes
The example in the table below summarizes how these rebates and tax incentives add up.
Heat Pump system cost |
Federal tax credit (30% up to $2,000) |
State tax credit plus sales tax exemption (12.9%) |
Utility rebate – Tri-State co-op |
Total amount of rebates and tax credits |
|---|---|---|---|---|
| Efficient, non- cold climate heat pump – $16,000 total ($8,000 for equipment) | $2,000 | $1,032 | $1,800 | $4,832 |
Incentives for New Homes
Federal Tax Incentives and Rebates
The federal tax credits for air-source heat pumps and for heat pump water heaters (HPWHs) do not apply to new homes. (The federal tax credits for ground-source heat pumps do apply to new homes.)
State Tax Incentives
The homebuyer is also eligible for the state tax credits mentioned above (10% income tax and 2.9% sales tax) for the equipment costs of the heat pump and HPWH in the new home.
Utility and Local Rebates
Some utilities have additional incentives for efficient and electric new homes, which are summarized here. (Scroll down to “Rebates and Tax Credits for Builders.”)
Summary for New Homes
Most of the utility rebates go to the new home builder, but the state tax credits go to the home buyer. For example, let’s say a new home has a 3-ton cold-climate heat pump and HPWH with total equipment costs of $12,000. In 2023, the home buyer would receive state tax credits/exemptions of $1,550. If the home is in a Tri-State Co-op service territory, the builder would also receive a rebate of $2,150 for the heat pump and heat pump water heater.
Love Electric aims to accelerate the adoption of heat pumps, heat pump water heaters, and other efficient electric technologies in homes and businesses across Colorado, to lower consumer energy costs, reduce greenhouse gas emissions, and provide improved health, comfort and other benefits. Love Electric is an initiative of the Beneficial Electrification League of Colorado (BEL-CO).