HVAC Tax Credits and Rebates: How to Save on a New AC

Ramsey Timmerman • February 8, 2023
The new year has come with dramatic changes to the energy efficiency tax credits and incentives landscape. The Inflation Reduction Act (IRA) of 2022 provides homeowners with new tax credits for installing certain HVAC systems. On top of the federal tax credits (25C), there are also numerous incentives and rebates available by state governments and local utility companies. Understanding which tax credits, incentives, and rebates are available to you can be very stressful - you don’t want to leave any money on the table. This article covers some of the federal and local tax credits, incentives, and rebates available nationwide and in the Birmingham Alabama area so you can take full advantage of the savings.

What tax credits are available for HVAC installations? 

Tax credits are dollar-for-dollar reductions of your taxable income. These can be claimed when you file your taxes and should help you reduce your total taxable income*. The inflation reduction act has brought a new Energy Home Improvement Tax Credit system that allows you to make larger income reductions when installing new HVAC systems. These include credits for installing heat pumps, efficient central systems and gas furnaces. You can even claim credits for upgrading your electric panel when installing new HVAC units.

(*Always consult a certified CPA for questions about tax credits and if you qualify to claim them.)

What are the Energy Home Improvement Tax Credits?

The energy home improvement tax credit allows you to claim tax credits for certain home improvement investments that improve home energy efficiency. All homeowners are allowed to claim up to $3200 annually on approved equipment installation or home improvements. The following are tax credits included for HVAC-related Energy Home Improvement with detailed information below:


  • Air Source Heat Pump Tax Credit - For heat pump Installations
  • Central Air Conditioners Tax Credit - For high efficiency central AC system installations
  • Furnaces (Natural Gas, Oil) Tax Credits - For high efficiency gas and oil 
  • Electrical Panel Upgrade Tax Credit - To upgrade your electric panel for new AC installations


Air Source Heat Pump Tax Credit

  • Homeowners can claim up to 30% of their heat pump installation cost with a maximum amount of $2,000. So if your heat pump is $5,000, you can claim $1,500. If the project is $10,000, you are maxed out at $2,000.
  • Ducted heat pump need to have an Energy Star label
  • Mini-split systems with SEER2 ≥ 16


Central Air Conditioners Tax Credit

  • Homeowners can claim up to 30% of their installation cost with a maximum amount of $600. So if your central system is $1,500, you can claim $450. If the project is $5,000, you are maxed out at $600.
  • ENERGY STAR certified equipment required with SEER2 > 16 is eligible.


Furnaces (Natural Gas, Oil) Tax Credits

  • Homeowners can claim up to 30% of their furnace installation cost with a maximum amount of $600. 
  • System must be ENERGY STAR certified with AFUE > 97%.


Electrical Panel Upgrade Tax Credit

  • Upgrading to a new AC system (heat pump or central) can often require electrical panel upgrades. The new energy home improvement tax credit now allows homeowners to credit some of the cost of upgrading their panel. Homeowners can claim up to 30% of their electrical panel upgrade cost with a maximum amount of $600.
  • Must follow code and have a capacity of more than 200 amps,
  • Installed must be in conjunction with or enables the installation and use of:
  • any qualified energy efficiency improvements, or
  • any qualified energy property (heat pump, central air conditioner, furnace, ect.)


Find out more on the Energy Star Website.

 Source: https://www.acca.org/viewdocument/25c-2023

What new rebates are available? 

The IRA also includes the High Efficiency Electric Home Rebate Act (HEEHRA) which is the innovative new heat pump incentive program. This program provides point-of-sale rebates on any heat pump for home heating and cooling up to $8,000. This means the rebate amount is deducted straight from the price of the installation - there is no need to send in and wait for a refund. The HEERA is available to low and moderate-income families. 

How do you know if you qualify for HEEHRA?

  • If your household income is less than 80% of your state's median household income - you are eligible for 100% of the installation cost up to $8,000. So if you spend $10,000 for new heat pump system, you would receive the full $8,000
  • If your household income is 80-150% of your state’s median income - you are eligible for 50% of the installation cost up to $8,000. So for a $10,000 heat pump, you could get $5,000 back.
  • If your household income is more than 150 percent of your state’s median income - you are not eligible for these rebates. However, you still could be eligible for a tax credit.

If you are interested to know where you land on the household income scale, you can use this app from Fannie Mae.
Source: HVAC Solutions, https://www.hvac.com/resources/inflation-reduction-act-heat-pump-rebates/

How do I get the heat pump rebate?

The information about how to get a heat pump rebate is not yet available. State governments will execute the HEEHRA rebate and guidance will be provided by the federal government in Spring 2023. More information will be available on how to claim this credit as soon as State guidance is released.  

Are there any local rebates available for my HVAC installation?

Numerous state and local rebates are available across the country. It will depend on the state, city, county where you live, and your utility company. Anytime you are planning on installing a new unit, make sure you do thorough research to understand any rebates available in your local area. These rebates can often be stacked together to save you more money on your installation.

Here is a useful tool by Energy Star to look for rebates available in your area. 

What rebates are available in the Birmingham Area?

In Birmingham, Alabama Power, Spire Energy, Central Alabama Energy Cooperative (CAEC) provide rebates and incentives for installing energy efficient systems or devices. Check their website regularly for rebates since they may update. 

Spire Energy provides rebates to natural gas customers who switch from dual-heating systems and electric heat pump systems to new and efficient natural gas furnaces. The following are rebates provided by Spire:
  • Switching from dual-heating system (electric heat pump with natural gas furnace) to a new, primary gas furnace with AC - Up to $400
  • Switching from an electric heat pump furnace to a new natural gas furnace - Up to $800
For more information visit Spire Rebates and Offers Home Page 

Alabama Power provides rebates for electric water heaters. New incentives for 2023 will be posted soon on their website. 

CAEC now provides heat pump rebates. If you are a customer of CAEC, you can take advantage of their heat pump rebate program. This program gives rebates on dual fuel (heat pump + gas furnace) and mini-split systems. These rebates are offered to customers with standard homes, and new and existing manufactured homes. Rebate qualifications are below:

Standard Homes: Dual fuel or mini-split systems replacement 
  • 15 SEER - $300/ton
  • 16 SEER or greater - $350/ton
New Manufactured Homes: Replace electric furnace with heat pump
  • 2 to 2.5 tons - $400
  • 3 to 4 tons - $600
  • 5 tons - $700
Existing Manufactured Homes: 
  • Converting from electric furnace to heat pump - $400/ton
  • Dual fuel or mini-split system replacement
    • 14 SEER - $250/ton
    • 15 SEER - $300/ton
    • 16 SEER or greater - $350/ton

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