The seasons are changing in Montana and so is the way many folks heat their homes. Why? The recently passed Inflation Reduction Act has opened up to $2,000 in tax credit for new heat pump installs. Not only are heat pumps climate-friendly and capable of decreasing home energy costs, but as of January 1st, 2023, installing a heat pump makes homeowners eligible for thousands of dollars in tax credits and rebates.

You might be thinking, “tax credits sound great, but what is a heat pump?” Heat pumps are an all-in-one home heating and cooling system. Energy-efficient and cost-effective, heat pumps provide reliable, year-round heating and cooling, which can help lower your utility bills and carbon footprint. Because they don’t rely on fossil fuels, heat pumps are also more sustainable than traditional home heating systems like furnaces, boilers, or baseboard heat, as well as most air conditioners.

Thanks to the Inflation Reduction Act and recent advances in heat pump technologies, now is a great time to consider switching to a heat pump. Let’s dig into the details of heat pumps, this new legislation, and how you can benefit from it all!

What is a Heat Pump?

A heat pump is a heating and cooling system that redistributes heat from outside to inside (or inside to outside) using refrigerant, compression, expansion, and electricity to warm, cool, or maintain the temperature in your house. Heat pumps connect directly to your thermostat and regulate temperature by transferring heat in tandem with an air handler or furnace tied into ductwork or a fan coil mini split system.

There are a few kinds of heat pump systems available on the market, but the most popular models are called “split” heat pumps. This type of pump has two components—one outside the home, and one inside linked by pipes or ducts. Some split source heat pumps are “air-source”, meaning they transfer heat from the outside air. Others are ground-source, gathering and transferring heat from thermal energy in the ground.

How Does a Heat Pump Work?

Heat pumps work using simple principles of thermodynamics. Open your front door during a wintery day and you’ll feel warm air getting sucked outside; leave your door open too long on a hot summer day and your home’s cool air temp will rise as warmth from the outdoor heat moves in. Thermal energy—heat—moves naturally in one direction: from warm to cold.

A heat pump can also be thought of as a heat transporter. Heat pumps work by moving heat from where you don’t want or need it to where you do. In the summer, that might mean moving heat inside to outside your home. In the winter, the reverse is true.

Why Choose a Heat Pump over Other Heating Systems?

In the shoulder seasons, a heat pump will regulate your home’s air temperature warmer or colder, depending on your thermostat temperature settings, just like HVAC systems. However, instead of creating heat (like a gas combustion system) heat pumps simply transfer or redistribute existing heat. Rather than needing both an air conditioning unit and a furnace, choosing a heat pump means your home benefits from the simplicity (and cost savings) of an all-in-one system approach.

Many folks wonder if heat pumps are a good match for cold climates. In our opinion as trusted Bozeman HVAC contractors, the answer is yes! Heat pumps do not necessarily generate as many BTUs as traditional furnaces, but new cold-climate-specific models are highly reliable down to -20 degrees and 100% efficient below zero.

What Are the Advantages of Using a Heat Pump?

Heat pumps are very energy-efficient. In ideal conditions, heat pumps will transfer up to 300% more energy than they consume. In addition to heat, a heat pump can provide cooling benefits. An Air Source Heat Pump is essentially an air conditioner compressor that cools when in cooling mode or heats when there is a need for heat.

In contrast to a heat pump, a high-efficiency gas furnace would be around 95% efficient. Because heat pumps are powered by electricity, their fuel source is flexible —they don’t rely on fossil fuels to heat a home. They can also be sustainably powered by solar, geothermal, or hydroelectric energy, even tying directly into an off-grid home. In addition, heat pumps are safe, requiring no gas lines and producing no carbon monoxide.

How Much Will It Cost to Install My New Heating System?

Without accounting for tax credits and rebates, installing a heat pump, on average, may cost between $6,000 to $18,000. Trane heat pumps, trusted for their quality and reliability, are an excellent option for Montana homeowners looking to upgrade to a system that will last for decades. During the coldest months with an air source heat pump, there will need to be a supplemental heat source for outdoor temperatures between 20-30 degrees Fahrenheit and lower. Montana homeowners can count on approximately 80% of their year-long heat requirements coming from the heat pump’s air source heat and 15-20% coming from electric resistance heat, fireplaces, or gas-fired furnaces.

Once installed, a well-insulated home will see an average savings of 30% to 70% on energy costs. Because a heat pump is 2-3x more efficient than a gas furnace, the installation cost usually pays for itself in energy savings within 5-10 years.

What Are the Rebates I Can Receive for My New Heating System?

The Inflation Reducation Act included Heat Pump Provisions to help more homeowners afford energy-efficient heat pump systems through heat pump tax credits and rebates.

Through heat pump tax credits, the federal government is offering a dollar-for-dollar reduction in your owed income tax. This tax credit is good for 30% of the total cost of what you pay for a heat pump, up to $2,000 in total. This includes the system components and the cost of labor to install.
In addition to the tax credits, homeowners may be eligible for heat pump rebates good for up to $1,750 for a heat pump water heater and $8,000 for heat pumps for space heating and cooling.

All taxpayers qualify for the tax credit program, while eligibility for federal heat pump rebate programs depends on household income level.

  • Households making less than 80% of their state’s median household income are eligible for 100% of the rebates.
  • Households making between 80 and 150% of the median household income of their state are eligible for 50% of the rebates.
  • If your household income is equal to or greater than 150% of the state’s median, you’re not eligible for the rebates, but you still qualify for the tax credits.

In addition to the tax credits and rebates specific to heat pumps, you can also claim up to $1,200 in total tax credits per year on costs related to upgrading the energy efficiency of your home. This may include air-sealing systems, upgrading your electrical supply, and doing a home energy audit.

Similar to the heat pump rebates, qualifying households can claim thousands of dollars in state-administered rebates on electrification and efficiency upgrades related to installing your heat pump. A tax preparer can help you navigate and claim all the tax credits and rebates available to help offset the cost of a heat pump.

Want to Learn More? Ask Your Montana Heat Pump Experts

When it comes to improving your home’s energy efficiency and reducing your energy bill year-round, choosing a heat pump could be an ideal solution for keeping your home warm, comfortable, and climate-friendly. The long-term benefits might be even more attractive in the coming months, thanks to the rebates for heat pumps that can offset the cost of purchase and installation.

Whether you need a Heating and Cooling contractor to your existing unit for winter temperatures, or you want to learn more about what a heat pump is, what models are available, and heat pump maintenance, we’re always available to answer any questions you might have. Contact our team today to schedule an appointment or ask your heat pump rebate questions.