Upgrading your HVAC system can be a major investment, but federal tax credits, state energy programs, and local utility incentives may help reduce the cost. The exact savings depend on the type of system installed, the equipment’s efficiency rating, the homeowner’s eligibility, and whether the program is still active at the time of installation.
Below is a summary of the main HVAC-related incentives homeowners should know about.
Federal HVAC Tax Credits
The federal Energy Efficient Home Improvement Credit has been one of the most important incentives for homeowners replacing heating and cooling equipment. According to the IRS, qualifying improvements made after January 1, 2023, may qualify for a tax credit of up to $3,200, but the IRS currently states the credit applies to improvements made through December 31, 2025. That means homeowners should verify current availability before assuming a 2026 installation will qualify. (IRS)
For qualifying HVAC equipment, the federal credit has generally included:
Central Air Conditioners
Qualifying central air conditioning systems may be eligible for a tax credit of up to $600 per item. To qualify, the equipment must meet or exceed the required efficiency standards set by the Consortium for Energy Efficiency for the year the system is installed. Installation labor may also be included for this category. (IRS)
Heat Pumps
Qualifying electric or natural gas heat pumps may be eligible for a tax credit of up to $2,000 per year. The IRS states that heat pumps must meet or exceed the required CEE highest efficiency tier, not including any advanced tier, in effect at the beginning of the year the equipment is installed. Installation labor may be included. (IRS)
Furnaces, Boilers, and Electrical Upgrades
Certain natural gas, propane, or oil furnaces and hot water boilers may qualify for a credit of up to $600 per item. Electrical panel upgrades may also qualify for up to $600 when they support qualifying energy property and meet the required electrical capacity standards. (IRS)
Important Federal Tax Credit Rules
The IRS notes that the credit is nonrefundable, meaning homeowners cannot receive more back than they owe in taxes. The credit must be claimed for the tax year when the property is installed, not merely purchased. Homeowners typically claim the credit using IRS Form 5695. (IRS)
Starting in 2025, qualifying equipment must also be produced by a qualified manufacturer, and the taxpayer must report the required Qualified Manufacturer Identification Number on their tax return. (IRS)
Arizona State HVAC Rebates
Arizona has been associated with federal Home Energy Rebate funding created through the Inflation Reduction Act. These programs were designed to provide point-of-sale or direct rebates for energy-efficient home upgrades, including heat pumps, for eligible households.
However, Arizona’s program status has been uncertain. Reporting from The Washington Post stated that Arizona paused its program after federal funding disruptions, and quoted the Arizona Governor’s Office of Resiliency as saying the program would remain paused until confidence was restored in federal reimbursement and communication. (The Washington Post)
When active, these federal Home Energy Rebate programs have been described as offering large incentives for income-qualified households, including up to $8,000 for heat pumps, up to $4,000 for electrical panel upgrades, and other electrification incentives. Because these programs are administered by states and can change quickly, Arizona homeowners should confirm availability before advertising or relying on these rebates. (The Washington Post)
Tucson Electric Power HVAC & Energy Rebates
For Tucson-area homeowners, Tucson Electric Power offers several residential energy-saving rebates and programs. TEP’s rebate page currently lists multiple residential incentives, including a $35 smart thermostat rebate, a $400 rebate for ENERGY STAR heat pump water heaters, and up to $800 for attic or roof insulation through a licensed insulation contractor. (Tucson Electric Power)
TEP also has an Efficient Home Program focused on reducing energy use around the house, including A/C maintenance education and energy-saving tips. However, based on the current TEP rebate page, I did not find a clearly listed flat rebate for a new central A/C system replacement. (Tucson Electric Power)
Can Homeowners Combine Rebates and Tax Credits?
In some cases, homeowners may be able to combine utility rebates, state incentives, and federal tax credits. However, the IRS explains that certain rebates or subsidies may need to be subtracted from the qualified project cost when calculating the federal credit, especially if the incentive is treated as a purchase price adjustment. (IRS)
Because of this, homeowners should keep copies of invoices, product certification documents, rebate paperwork, and tax forms. It is also smart to speak with a tax professional before assuming the full project cost will qualify for a federal credit.
Bottom Line
HVAC rebates and tax credits can provide meaningful savings, especially for homeowners upgrading to a qualifying high-efficiency heat pump, central air conditioner, heat pump water heater, or related electrical equipment. Federal tax credits have offered up to $600 for central A/C systems and up to $2,000 for qualifying heat pumps, but current IRS guidance indicates those credits apply to improvements made through December 31, 2025. (IRS)
For Arizona and Tucson homeowners, state-level heat pump rebates may depend on whether Arizona’s Home Energy Rebate program is active, while TEP currently lists rebates for smart thermostats, heat pump water heaters, and insulation. (The Washington Post)
Before replacing an HVAC system, homeowners should confirm current incentives with their utility provider, review IRS requirements, and ask their contractor whether the equipment meets the efficiency standards needed to qualify.
Contact Temco Air today at (520)622-2909 for details on how to qualify for the Carrier rebate.
Now is the time to replace your home’s inefficient heating and air conditioning system.
