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If you need to replace your gas furnace or air conditioning, you now have a new opportunity to save big on your utility bills.
If you can replace your old heating-cooling units with a heat pump, you can qualify for up to $8,000 on the spot in a federal credit. Although the credit is indexed to your income, it’s a major deal on something that will heat and cool your home in one unit.
“These heating and cooling systems, once considered useful only in warmer climates, have in the past few years become far more sophisticated,” writes Robert Gebelhoff in The Washington Post. “They are now the best chance we have to phase out fossil fuels as a means of heating and could set the stage for a climate policy revolution.”
“For every unit of electricity a heat pump uses,” Gebelhoff notes, “it can generate 2.5 to 5.5 units of heat, according to the International Renewable Energy Agency. In other words, heat pumps have an energy efficiency of 250 to 550 percent. Fossil-fuel boilers, in contrast, are at best 95 percent efficient. This is why heat pumps often save energy costs in the long term, even though they can be expensive to install, especially when replacing existing systems. Cost estimates vary widely depending on the size and age of a house, ranging from as low as $3,000 to upwards of $20,000.”
The downside of the tax credit is that it’s complicated. According to HVAC.com, here’s how they work:
- If your household income is 81-150% of your area’s median income, you’ll receive up to 50% of the heat pump’s cost.
- If your household income is 80% below your area’s median income, you receive the maximum rebate, covering your new heat pump at 100% up to $8,000. To look up your area’s median income, use this tool from Fannie Mae
- You’re not out of luck if your household income exceeds 150% of your area’s median income. These homeowners receive a 30% tax credit of up to $2,000 on new heat pumps.
- The heat pump rebates are significant for low-income homeowners. According to HomeAdvisor, heat pumps cost an average of $5,792. In most cases, low-income households will get a new heat pump for free.
The good news is that middle-income households will save an average of $2,896 on a new heat pump. And above-middle-income households will get an average tax credit of $1,737.60. Retirees who need to replace their heating-cooling units will see some significant savings.