Heat Pump Tax Credits: State and Federal
Colorado's heat pump tax credit survives in 2026, but your contractor claims it: $1,000 on an air-source system, with at least $333 passed to you as an invoice discount. The federal credits ended for installs after 2025.
By the editors of Heating & Cooling the Front Range · Sources checked
Spread the paperwork from a heat pump job across a kitchen table in Lakewood and the tax side of it looks very different from two years ago. There is no federal form to fill in for a 2026 install. There is no state credit line on your own Colorado return either. What there should be, if the job qualifies, is one line on the contractor's invoice with a specific name, and that line is where the state's money now lands.
That is the short answer. Colorado still has a heat pump tax credit in 2026, but since 2024 only registered contractors claim it, and at least a third has to come back to the customer as a discount. For an air-source heat pump installed this year the credit is $1,000 and your share is at least $333. The federal credits that once paid 30% of the cost, 25C for heat pumps and furnaces and 25D for geothermal, stopped for equipment placed in service after Dec. 31, 2025.
The figures below come from the Colorado Energy Office, the Colorado Department of Revenue, the state legislature and the IRS, all checked on October 31, 2026. Tax rules change and individual situations differ, so treat this as a guide and run anything you plan to claim past a tax professional.
Part 1Who actually gets Colorado's heat pump credit?
The contractor does. The Colorado Energy Office's program page says the credit can only be claimed by registered contractors who offer the discount. The homeowner's part is to receive that discount, and the same page is explicit that "Customers do not need to file any paperwork to receive the discount."
The discount has to be visible. Every qualifying invoice must show it under the name "State of Colorado Heat Pump Discount," and the contractor may keep no more than two-thirds of the credit. In other words, at least 33% of the credit reaches you as a lower price.
This design came from HB23-1272, the 2023 law that created the credit for heat pump technology. A 2025 special-session bill, HB25B-1018, would have made 2025 the credit's final year. Its status on the legislature's site is "Lost," so the credit carried into 2026, at the lower amounts below.
If a quote shows no state discount line, ask why. The job may not qualify, or the company may not be registered with the program. Contractors have until Dec. 31, 2026 to register for this year's installs, and from April 2026 registered contractors must complete quarterly training webinars and quizzes or be dropped from the program.
Part 2The 2026 amounts, and how they fell
For systems installed on or after Jan. 1, 2026, the Colorado Energy Office lists three amounts:
An air-source heat pump earns a $1,000 credit, with a minimum customer discount of $333. A ground-source, water-source or combined-source system earns $2,000, with at least $667 to the customer. A heat pump water heater earns $250, with at least $83 to the customer.
Those are smaller than the 2024–2025 figures, which have now expired: $1,500 for air-source, $3,000 for ground-source and $500 for heat pump water heaters, with minimum discounts of $499.95, $999.90 and $166.65. If a neighbor installed in 2025 and quotes the old numbers, that is why your invoice looks different. The energy office also says the totals will step down again in tax year 2029.
State heat pump credit, 2024–2025 vs 2026
dollars per system
Part 3What has to be true about the equipment?
The rules are short but strict. The heat pump must be ENERGY STAR certified. An air-source system must be AHRI-matched, meaning the outdoor and indoor units are certified to work together as a pair. And a heat pump that heats the house has to be sized, by design, to handle 80% or more of the home's yearly heating need.
That last test matters on the Front Range. A small heat pump added to a 1990s Highlands Ranch two-story to take the edge off spring and fall, with the gas furnace doing most of the winter work, may not pass. A cold-climate system sized for the house, with the furnace kept as backup for the hardest mornings, is closer to what the program describes. How to strike that balance is the subject of weighing a furnace against a heat pump.
Small rental owners should know one more rule. A contractor can claim one credit for each unit a heat pump serves, so a single air-source system heating three units of a triplex earns three $1,000 credits.
Part 4The homeowner credit and sales-tax break are gone
Older guides, and some older sales sheets, still describe a Colorado credit you claimed yourself. That was a 10% state income tax credit for heat pumps, and it came with an exemption from state sales tax on the equipment. According to the Colorado Department of Revenue, both expired on Dec. 31, 2023. Since 2024 the credit has belonged only to registered contractors, and there is no state sales-tax exemption for heat pumps to ask about.
Part 5The federal credits ended with 2025
For new installs, the federal credits are over.
The energy-efficient home improvement credit, section 25C, covers nothing put into service after the last day of 2025, according to the IRS's FAQ on the 2025 law that ended it. The residential clean energy credit, section 25D, which covered geothermal heat pumps, is not allowed for expenditures made after that date.
Timing catches people out. The IRS treats a 25D expenditure as made when the installation is completed, so a deposit paid in December 2025 for a system finished in 2026 does not qualify. If a salesperson suggests otherwise, ask them to show you the IRS wording.
For the record, here is what the credits used to pay. Under 25C, a homeowner could claim 30% of the cost, up to $3,200 a year in total: up to $2,000 for heat pumps and heat pump water heaters, and up to $600 each for central air conditioners and gas furnaces, boilers and water heaters. Under 25D, geothermal heat pumps earned 30% of the cost for systems installed through Dec. 31, 2025.
One loose end remains for 2025 jobs. The IRS 25C page says that for items placed in service in 2025, no credit is allowed unless the item came from a qualified manufacturer and the taxpayer reports its qualified manufacturer identification number. If your equipment went in last year, make sure that number is in your paperwork before you file.
Part 6What fills the gap in 2026
With the federal money gone, a Front Range heat pump job now leans on three sources. The state discount is one. Xcel Energy's rebates are the second: for a cold-climate heat pump, $1,500 per heating ton at the bonus rate or $750 at the standard rate, for installs completed by Dec. 31, 2026. The third is Power Ahead Colorado, run by the Denver Regional Council of Governments, which adds $1,500 for each qualifying cold-climate heat pump put in by a contractor it has verified. Deadlines and fine print are in our Xcel rebate guide.
Some state money has closed. The Colorado Energy Office's rebate page says the federally funded HEAR rebates for single-family homes, which were income-limited and paid through registered contractors, are no longer available; applications ran from Nov. 13, 2025 to Aug. 1, 2026. Separate tracks for manufactured homes and for multifamily buildings are listed as "Coming Soon."
The City of Denver adds no homeowner tax credit or cash rebate of its own; its programs are covered in what Denver requires when you replace.
Part 7The paperwork to keep
None of this needs a tax form from you in 2026, but it does need a file. Keep these together, ideally with the permit:
The final invoice, with the "State of Colorado Heat Pump Discount" line and the amount. If it is missing, ask before you pay the balance.
The model numbers for the outdoor unit and the indoor coil or air handler, plus the AHRI reference the contractor used to show they are a matched pair.
The Xcel rebate paperwork, whether the rebate came off the invoice or you are waiting for a check, and the install date.
The permit and the final inspection. A heat pump replacement in Denver, Aurora or Lakewood needs one, and permits and inspections for a new system explains what the inspector looks at. A contractor who claims a state credit and also pulls a proper permit is a good sign; for the rest of that vetting, see how to choose a Front Range contractor.
Common questions
Can a homeowner claim the Colorado heat pump credit on a 2026 state return?
No. Since 2024 registered contractors claim it and hand at least 33% of it back to you as an invoice discount. The old 10% homeowner credit ended on Dec. 31, 2023.
Does a deposit paid in 2025 make a 2026 install eligible for the federal credit?
No. The IRS ended 25C for equipment put in service after 2025, and it treats a 25D expenditure as made when the installation is completed. A system finished in 2026 does not qualify for either.
Does a heat pump water heater earn the Colorado credit?
Yes, at a lower amount. For installs from Jan. 1, 2026, the contractor's credit is $250 and at least $83 must reach the customer as a discount.
Is there still a Colorado sales tax exemption for heat pumps?
No. The state sales-tax exemption for heat pumps expired on Dec. 31, 2023, together with the homeowner income tax credit.
Will the state credit shrink again?
The Colorado Energy Office says the credit totals will decrease again in tax year 2029. A 2025 bill that would have ended the credit after 2025 did not pass.
Sources
- Colorado Energy Office — Heat Pump Tax Credit — contractor claims the credit, 2026 and expired amounts, minimum discounts, invoice wording, equipment rules, multifamily, registration and training, 2029 step-down
- Colorado Department of Revenue — DR 1322 heat pump credit — homeowner credit and sales-tax exemption ended Dec. 31, 2023
- Colorado General Assembly — HB23-1272 — law creating the heat pump credit
- Colorado General Assembly — HB25B-1018 — bill to end the credit after 2025, status Lost
- IRS — FAQs on the 2025 changes to 25C, 25D and related credits — end dates and the completed-installation rule
- IRS — Energy efficient home improvement credit — former 25C limits and the 2025 manufacturer ID rule
- IRS — Residential clean energy credit — former 25D coverage of geothermal heat pumps
- Colorado Energy Office — Home Energy Rebates program page — dates of the closed HEAR round for houses; tracks still to come
- Xcel Energy — Heat pumps, Colorado residential — 2026 install deadline
- DRCOG — news release on the Power Ahead Colorado launch — the $1,500 regional rebate, July 2026