What the 2023 tax credit covered

The 2023 federal tax credit for HVAC systems was part of the Inflation Reduction Act and covered the cost of installing a new heat pump — either an air-source heat pump for heating and cooling, or a ground-source (geothermal) heat pump. The credit did not cover traditional furnaces, air conditioners, or boilers, even if they were high-efficiency models. You could claim up to $2,000 for a heat pump installation on your 2023 tax return.

The system had to be installed in your primary residence (a house or condo you lived in, not a rental property or second home). The installation had to happen in 2023 for you to claim the credit on your 2023 taxes. If you installed a heat pump in 2024, you would claim that credit on your 2024 return instead.

Income limits applied. For 2023, the credit began to phase out if your modified adjusted gross income exceeded $150,000 (single filers), $300,000 (married filing jointly), or $200,000 (head of household). If your income was above those thresholds, you could not claim the credit.

Key Takeaways

  • Only heat pump installations — air-source or ground-source — may have access to for the 2023 credit; traditional furnaces and air conditioners did not.
  • The system had to be installed in your primary residence in 2023 to claim the credit on your 2023 tax return.
  • The maximum credit was $2,000 per heat pump installation, regardless of the system's cost.
  • Your modified adjusted gross income had to be below $150,000 (single), $300,000 (married filing jointly), or $200,000 (head of household) to claim the full credit.
  • You needed documentation from your installer showing the heat pump model, installation date, and cost to support your claim.

Air-source heat pumps and the credit

An air-source heat pump heats and cools your home by moving heat between the indoors and outdoors. These are the most common type of heat pump and the ones most homeowners installed to claim the 2023 credit. The system pulls heat from outside air in winter (even in cold climates) and moves it indoors, then reverses the process in summer to cool your home.

The credit applied to the installed equipment itself — the outdoor unit, indoor unit, and controls — not to ductwork, insulation, or other improvements done at the same time. If you had your ducts sealed or replaced as part of the same project, that work did not may have access to for the heat pump credit, though it might have may have access to for a separate energy-efficiency credit if it met other requirements.

Ground-source heat pumps and the credit

A ground-source heat pump (also called a geothermal heat pump) works the same way as an air-source model but pulls heat from the ground instead of the air. These systems are more expensive to install because they require drilling or trenching, but they are more efficient in most climates. They also may have access to for the $2,000 credit in 2023.

Ground-source systems are less common than air-source models, partly because of the higher upfront cost and the need for suitable land. If you had one installed in 2023, you could claim the credit the same way as an air-source installation — by providing your installer's documentation and reporting it on your tax return.

What did not may have access to

Traditional furnaces — whether gas, oil, or electric — did not may have access to for the 2023 heat pump credit, even if they were ENERGY STAR certified or had very high efficiency ratings. A furnace heats only; it does not cool. The credit was specifically for heat pumps because they use electricity and can replace both heating and cooling systems.

Central air conditioners, window units, and ductless mini-split cooling systems also did not may have access to on their own. However, a ductless mini-split heat pump (which provides both heating and cooling) did may have access to if it was a heat pump model, not a cooling-only unit.

Repairs, maintenance, or replacement of parts in an existing heat pump did not may have access to. The credit applied only to the installation of a new system. If you had an old heat pump that broke down and you replaced it with a new one, that replacement installation may have access to, but a repair to the old system would not have.

Documentation you needed

To claim the credit on your 2023 taxes, you needed to keep records showing the heat pump model, the installation date, and the total cost of installation. Your HVAC contractor should have provided an invoice or receipt with this information. You also needed to confirm that the system met the Department of Energy's specifications for the year it was installed — most new heat pumps sold in 2023 did, but it was worth checking with your installer.

You did not need to submit these documents with your tax return, but you had to have them available if the IRS asked questions later. Keep receipts and invoices for at least three years after you file.

How the credit worked on your taxes

The heat pump credit was a nonrefundable tax credit, which means it reduced the amount of federal income tax you owed but could not result in a refund larger than your tax liability. If you owed $1,500 in federal taxes and claimed a $2,000 heat pump credit, your tax bill would drop to zero, but you would not receive the extra $500 as a refund.

You reported the credit on Form 5695 (Residential Energy Credits) and attached it to your Form 1040 when you filed your 2023 return. If you had questions about how to fill out the form, the IRS website and free tax preparation services (like VITA, which serves lower-income households) could walk you through it.

Income phase-out and how it affected you

If your modified adjusted gross income was above the threshold for your filing status, the credit was reduced or eliminated. The phase-out was gradual — you did not lose the entire $2,000 all at once. For every $1,000 (or fraction thereof) above the threshold, the credit decreased by $200.

For example, if you were a single filer with a modified adjusted gross income of $160,000, you were $10,000 over the $150,000 threshold. That meant your $2,000 credit would be reduced by $2,000 (ten increments of $200), bringing it to zero. If your income was $152,000, you would be $2,000 over the threshold, reducing your credit by $400, leaving you with a $1,600 credit.

Frequently Asked Questions

Can I claim the 2023 credit if I installed a heat pump in late 2024?

No. The credit you claim on your 2023 tax return must be for a system installed in 2023. If you installed a heat pump in 2024, you would claim that credit on your 2024 return. The IRS matches the installation date on your contractor's invoice to the tax year you claim the credit in.

Does a ductless mini-split system may have access to?

Only if it is a heat pump model that provides both heating and cooling. A cooling-only mini-split does not may have access to. Ask your installer whether the system is a heat pump or cooling-only before installation, because the distinction determines whether you can claim the credit.

What if I replaced an old heat pump with a new one?

The replacement installation qualifies for the credit as long as it was a new system installed in 2023 and you meet the income requirements. The fact that you already had a heat pump does not disqualify you from claiming the credit for the new one.

Can I claim the credit if my income is slightly above the limit?

The credit phases out gradually above the income threshold, so you may still be able to claim a reduced amount. Use the phase-out calculation (every $1,000 over the threshold reduces the credit by $200) to estimate your credit, or work with a tax preparer to calculate it exactly.

Do I need to file a special form to claim this credit?

Yes. You report the heat pump credit on Form 5695 (Residential Energy Credits) and attach it to your Form 1040. If you use tax software, it will typically walk you through the questions and generate the form automatically based on your answers.