Greater home energy efficiency. Shrunken environmental footprints. Better indoor air quality (IAQ). Lower utility bills. Tremendous cost savings through rebates and tax credits. There’s a lot to love about heat pumps for homeowners, but red tape and complexity continue to stand in the way for many who are interested in reaping the benefits.
To help you out, we’ve compiled everything you need to know to simplify the decision, from nuts-and-bolts basics (“What’s the best heat pump for my home?”) to the legislative nitty-gritty being rolled out right now (“Which rebates and tax credits apply to me?”). Below is a breakdown of what’s covered in the guide, but feel free to click ahead if you have a specific question.
If you’ve done any research on heat pumps, you’ve probably encountered a version called an “air source” heat pump, which, for residential use, is by far the most common. They look like the unit in the image beside.
So how do they work? A heat pump is basically an air conditioning unit with a reversing valve that allows the cooling cycle to run backwards, making it a heating cycle. On the cooling side, it functions like most air conditioners, drawing in air from your house and running it over coils that contain very cold refrigerant. The refrigerant absorbs the heat, then passes through the compressor in the outdoor part of the unit, where it’s turned into a high-temperature gas. As the gas passes through the outdoor coils, the coils release the heat into the air outside your home. The gas then begins to cool back into a liquid. The cold refrigerant is sent back into your home along with cold, dry air, and the cycle starts again.
Does that mean you’ll only raise the temperature in your home 15° F? Nope. Your heat pump is working continuously, which means if the temperature outside stays steady, it will keep adding 15° F worth of energy (again, in BTUs) each cycle until your home reaches the temperature you’ve set on your thermostat.
That long cycle time matters when it comes to comfort. Unlike a furnace, which has shorter cycles but produces much more heat per cycle, a heat pump warms the home more gradually, producing less heat per cycle. For many homeowners, this lower intensity is appealing — instead of being subjected to large temperature fluctuations throughout the day or space, you can enjoy consistent temperature throughout your home. And much as a car’s MPGs increase on the highway, a heat pump that’s continuously running uses less energy than a furnace, which has to stop and start over and over again.
Finally, from the standpoint of indoor air quality (IAQ), it’s important to note that a heat pump works by moving energy or heat from one place to another — unlike a furnace, there’s no combustion required, so there’s no chance that carbon dioxide or other potentially harmful gasses will leak into and contaminate your indoor air.
Now that we’ve covered how heat pumps work in general, it’s time to answer one big question when it comes time to choosing the right heat pump for your home: Ducted heat pump or ductless mini-split?
They’re both air source heat pumps, but there are some key differences. Chief among those is that a ducted heat pump can only run at full blast or not at all. This means that when the temperature drops below your preset level, it comes on and stays on until the room reaches the desired temperature, and then turns off again. A ductless mini-split, on the other hand, uses an inverter that allows it to run continually, making adjustments to its capacity based on changes in temperature.
But the differences don’t end there. A ductless mini-split distributes heated or cooled air directly into your home without — as the name suggests — the need for ductwork. While traditional air-source heat pumps use air handlers to distribute air, these mini-splits mount on your wall and connect to the outside unit through a very small hole. As a result, mini-splits generally don’t have the kinds of air leakage problems that sometimes accompany ductwork. They also tend to carry higher SEER ratings — that is, “Seasonal Energy Efficiency Ratio” ratings — than traditional air-source models.
As noted, however, you should speak with your contractor to determine whether a ductless mini-split is the right fit for your home. If so, your contractor may recommend placing a mini-split on each floor or in different rooms to ensure whole-home coverage, depending on the size and layout of your home.
An Alternative to Air Source: Geothermal Heat Pumps
So far, we’ve outlined the basics of air-source heat pumps and detailed how they work in a typical setup. But there are other variations to consider — including a model that eschews air altogether in favor of other means of heating and cooling your home. Bear in mind that you should always speak with a contractor before deciding on the ideal model for your home.
Geothermal pumps are sometimes called “ground source” heat pumps, and for good reason. Why? Because instead of using air as the exchange point for heat, they use the ground, which maintains a more-or-less constant temperature throughout the year, unlike the air. Of course, ground temperature may vary based on location, but within a given location, it’s pretty constant, remaining cooler than air for one part of the year and warmer than air for the other.
As such, a geothermal heat pump relies on pipes, which are buried underground and contain water or a mixture of water and antifreeze, to absorb energy from the ground, compress it, and release it into the home in the form of warm or cool air. Because the underground temperature remains more or less constant, it’s often easier to forecast and calculate energy savings using geothermal heat pumps than it may be with air-source models. These heat pumps can also provide additional functionality, such as hot water heating.
That said, there are a number of considerations you should take into account before deciding on a geothermal unit. For example, you’ll need available space to bury the pipes, plus the right kind of soil with acceptable moisture levels — all which helps explain why geothermal heat pumps tend to be more expensive than air-source pumps. But as always, consulting with a qualified contractor is your best bet for arriving at the right decision.
What are the primary benefits of switching to a heat pump? There are three big ones to keep in mind: greater energy efficiency, better health and environmental outcomes, and bottom-line cost savings. Let’s look at them one at a time.
Make no mistake, the energy efficiency associated with heat pumps is off the charts, especially when compared to other electric water heaters that use electric resistance. According to the U.S. Department of Energy (DOE), “Heat pumps use electricity to move heat from one place to another instead of generating heat directly. Therefore, they can be two to three times more energy-efficient than conventional electric resistance water heaters.”
In fact, the DOE pegs the percentage of energy used in the average home to heat water at 20% of total energy usage. Combining that much efficiency with that amount of usage adds up to a very low-cost way to fill the soaking tub.
The second benefit of heat pumps ties back to health and environmental outcomes. Why? At the core, the issue has to do with combustion. Combustion heat pumps burn fuel to heat your water, which means they not only produce greenhouse gasses, which negatively impacts the environment, but they also generate toxic byproducts that can impact your home’s indoor air quality — neither of which come into play with a heat pump. In other words, switching to a heat pump is a win-win for both your health and the environment.
To understand the potential cost savings associated with switching to a heat pump, you need to understand just how energy efficient today’s heat pumps truly are. For instance, the Department of Energy estimates that modern heat pumps can reduce your electricity use for heating by 50 percent compared to furnaces, baseboard heaters, and basically any other system that uses electric resistance to heat your home.
However, unlike, say, an LED light bulb, the energy efficiency of any one heat pump depends on a number of factors. For instance, if we think of efficiency in terms of energy input and energy output of a single unit, then heat pumps beat traditional heating methods, by a lot. Efficiency for heat pumps in cooling mode is measured just like air conditioners, with a seasonal energy-efficiency rating (SEER). The higher the SEER, the higher the efficiency. In 2023, the minimum SEER requirements for air-source heat pumps in the northern part of the United States is 14, and 15 in the southern states, but models exist that run up to 33 (though these top scores are likely derived in perfect lab conditions).
On the heating side, heat pump efficiency is measured with a heating seasonal performance factor (HSPF). Minimum HSPF is 8.8 in 2023, and current high-efficiency models top out around 14.
Furnaces operate on a different rating system, but if we think about efficiency comparison in terms of how each type of unit utilizes the energy you put into it, we can get a good idea of relative performance. A properly installed air-source heat pump in moderate climates will move up to three times as much energy as it takes to power the unit into your home. A newish, high-efficiency furnace, on the other hand, will convert about 95 percent of the energy put into it into usable heat for your home. For every unit of energy you put into a heat pump, you receive more energy back than you would if you put that same unit into a furnace.
With all of that in mind, how much will a heat pump actually save on your energy bills?
The key takeaway, going back to that DOE estimate of 50% reduction in electricity usage for heat, is that every unit of electricity you use to heat your home with a heat pump goes further than the same unit used by a furnace — which is why some studies have found that homeowners save up to $1,000 annually. Ultimately, however, how much you save will depend on a lot of factors: the size and layout of your home, the particular model you install, its cost, and SEER/HSPF rating; the range of temperatures in your location; and the degree to which your home is properly sealed and insulated. Starting with an energy audit and a consultation with an experienced HVAC or home performance professional can go a long way in helping you calculate your net savings.
While natural gas furnaces remain the most-used heating method for homes in this country, heat pumps are rapidly gaining ground, especially among cost-, efficiency-, and value-minded homeowners. To help you understand why, let’s look at a side-by-side comparison of heat pumps versus furnaces in key areas like:
Energy efficiency
Cost of installation
Equipment lifespan
Indoor air quality (IAQ)
Temperature consistency and comfort
Sustainability
Spoiler alert: Across nearly every category, heat pumps take the cake, and we’ll show you why.
When it comes to the energy efficiency of your heating system, you need to compare input to output. That is, for every British thermal unit (BTU) you put into your heating system, how many BTUs do you get out?
For furnaces or boilers that use natural gas, propane, or oil, this is measured in annual fuel utilization efficiency (AFUE) — the percentage of fuel put into your heating system that is turned into heat for your home. The higher the AFUE, the more efficient the system. Generally speaking, newer combustion furnaces and boilers have higher AFUE ratings than older ones. Meanwhile, electric furnaces, which produce heat via electrical resistance, are widely considered to be the least efficient heating systems.
Unlike combustion units, heat pumps use compression to create heat or to cool a space — the same principle used in refrigerators. Rather than generating heat, they transfer it, which requires less energy. So for every BTU of electricity your heat pump consumes, it produces two to three BTUs of heat energy. Which makes it, at a unit level, much more energy efficient than even a high-efficiency natural gas furnace — and up to 50% more efficient than an electric-resistance furnace. What’s more, this is true even if you live in a region where temperatures dip below freezing in winter, as the DOE has now developed heat pumps specifically designed for these types of environments).
Related Post: Heat Pump Versus Furnace: How do they stack up?
Comparing acquisition costs on heat pumps versus traditional finance systems reveals a fundamental truism about all things heating, ventilation, and air conditioning (HVAC): The more efficient the system you want to implement, the higher the upfront cost is going to be. So it’s true that, depending on the size of the home, the complexity of the system, and the ductwork required, the installation costs are in general slightly higher for an air-source heat pump than for a traditional furnace.
However, that’s not the whole story. Remember: A heat pump is a heating and cooling system in one. With a furnace and air-conditioning system, by contrast, you’re looking at two separate operations — with separate operating costs, too. That alone can translate to a significant reduction in overall HVAC costs, since you won’t have to install a central air-conditioning unit.
Plus, there’s another big-ticket economic factor to consider: namely, home resale value. One study, for example, found that homes equipped with heat pumps showed an increase in value of 4.1% to 7.3% compared to those that were not. Between energy cost savings over time and an increase in the value of your home, it’s fair to say that heat pumps win the overall battle of the bill.
Moreover, the cost of installing heat pump systems has recently decreased dramatically thanks to major incentives, rebates, and tax credits included in the Inflation Reduction Act. But let’s table that discussion for now, as we’ll cover it in great detail later on (skip ahead to “Heat Pump Rebates and Tax Credits” to learn more).
Since furnaces and boilers are only used during the cold months, they typically have a longer lifespan than heat pumps, depending on the models involved. Keep in mind that if you need cooling in addition to a furnace or boiler, you may need to replace your separate air-conditioning system more frequently. According to the National Association of Certified Home Inspectors (NACHI), the typical lifespan for these HVAC systems is as follows:
| Equipment | Lifespan |
|---|---|
| Furnace | 15-25 years |
| Boiler | 40 years |
| Air-source heat pump | 10-15 years |
| Geothermal heat pump | 20 years for the heat pump, 25-50 years for the ground loops |
| Central air-conditioning system | 7-15 years |
Whatever system gets the nod, keep in mind that annual maintenance is required for all types of HVAC systems and is critical to reaching or exceeding average life expectancy.
Indoor Air Quality Winner: Heat Pump
Furnaces, air conditioners, and heat pumps all rely on forced air to spread the warm or cool air through the house. Boilers pump warmed water into radiators or floor panels to provide radiant heat. Any time you burn fossil fuels, you produce carbon monoxide (CO), a dangerous gas, and a malfunctioning combustion heater can expel gas into your home. In the case of forced-air systems like furnaces, the gas may be sent through the ductwork and into your rooms.
So when it comes to indoor air quality, the heat pump is definitely the safer choice.
From a comfort perspective, many homeowners find the always-on flow of heat pumps to be more comfortable than the on-and-off blasts of combustion systems. Additionally, the hot air produced by a combustion furnace can be very dry, while heat pumps, which move air rather than produce it, can help maintain a more natural and comfortable humidity level.
If you’ve paid any attention to what the U.S. Environmental Protection Agency (EPA) or DOE have had to say over the past few years, you’ve probably heard about the benefits of switching from a furnace or boiler to a heat pump if you want to lower your carbon footprint. In fact, studies have shown that using heat pump technology has emission reductions of up to 53% for carbon dioxide and up to 67% for 20-year global warming potential compared to fossil fuel furnace systems.
Switching to a heat pump might sound like a no-brainer at this point, but there are still critical pieces of information you need in order to arrive at the right purchasing decision. To help you out, here are some of the key questions you should ask contractors or HVAC professionals before you decide.
It’s important for any HVAC professional you work with to be well-versed in energy efficiency. This not only helps ensure that they can help you choose the right heat pump model, but also that they can provide you with an accurate assessment of your home’s current heating and cooling challenges (for example, gaps in your building shell), the feasibility and cost of reaching your goals with a heat pump, the type of heat pump that might be best based on your climate and footprint, and all the other variables that impact your home’s energy efficiency.
For peace of mind — and to make the process easier — you can always source vetted, experienced contractors through the Green Door app.
The answer to this question could prove to be fairly complex, which is why it should come from a qualified contractor or HVAC professional — someone who has a deep understanding of and experience in home energy efficiency, as well as firsthand knowledge of your goals, your current heating or cooling system, and the layout of your home. So be sure to ask specific questions about the advantages of a heat pump for your home in particular, taking into account your insulation and air sealing, air flow, ductwork, quirks of climate, electricity and fuel costs, and more.
When raising complex questions about heating and cooling systems, it’s important to zero in on the space itself that will be heated and cooled — and this is especially true when it comes to heat pumps. For example:
Do you have enough insulation and air sealing in place to keep the conditioned air in your home where it belongs? Are your windows and doors relatively new, certified for efficiency, and installed properly?
No matter how efficient your heat pump, you will never achieve whole home efficiency if your heat is pouring out of your home through gaps in the attic and roof plane, through a non-weatherized crawlspace, or leak points around your outlets and ductwork. An energy audit with a blower door test is highly recommended before you even begin to think about installing a heat pump (or any HVAC system for that matter!).
Does the size of your home potentially necessitate a larger heat pump?
Sizing is a major consideration when it comes to choosing a heat pump. Improper sizing or installation of a heat pump can tank your efficiency gains and cost you money — which is why it’s a good idea not to rely on free online tools to calculate your load and capacity (or BTUs based on the square footage of your home). The Air Conditioning Contractors of America (ACCA), for example, have developed Manual J as the standard for determining heating load, which requires answers to 11 different variables about your home and outdoor environment before load can be established. This is another reason why homeowners look to Pearl to connect with vetted contractors who can perform certifiable work. These contractors will take into consideration all of the complex factors impacting load and capacity before recommending an appropriate unit for your home.
Is a cold-climate pump better for your home based on the average seasonal temperatures in your location?
Heat pump technology has advanced to the point where ultra-cold climates are no longer a barrier to their usage. Through the use of variable-speed compressors, inverters, and refrigerants with lower boiling points, cold-climate, air-source heat pumps can operate at far lower temperatures without losing efficiency.
Cold climate heat pumps are generally more expensive than traditional air source heat pumps, so if you’re looking to make a smaller investment, your contractor can install a backup heat source, such as a furnace or electric resistance heat strips, within the heat pump itself. You won’t achieve the same efficiency as running a heat pump alone, but you will be more comfortable in ultra-cold weather.
Pro tip: Ask your contractor if they can provide modeling, which may help you better understand what your energy costs and savings will be over the long haul by switching to a heat pump.
Switching to a heat pump is a smart move that comes with clear benefits, from improving your home’s energy performance to increasing its resale value. Of course, you might have some reservations about the upfront costs of converting.
The good news is that, thanks to the 2022 Inflation Reduction Act (IRA), the government has allocated $8.8 billion in rebates for energy efficiency and home electrification projects, along with key tax credits that can help you save on heat-pump-related purchases and installations. Here’s an overview of everything you need to know.
HEEHRA has allocated $4.5 billion dollars to state governments to help low- and moderate-income homeowners make their homes more energy efficient. HEEHRA works through point-of-sale — meaning when you buy, say, your new heat pump, the savings will be applied automatically. How much you ultimately save will depend on your household income. Households making less than 80% of their area median income (ARI) qualify as "low-income," while those making 80-150% of their ARI are classified as "moderate."
For low-income households, the rebates from HEEHRA can be huge. The program offers 100% rebates (up to $14,000) for qualifying purchases. For those in the moderate income bracket, the savings can be substantial as well, clocking in at 50% (again up to $14,000).
Qualified rebates under HEEHRA cover a variety of home electrification purchases, including quite a few that could help you in a full-scale heat-pump conversion:
| HEEHRA Rebate | Potential Savings |
|---|---|
| Heat pump HVAC systems | $8,000 |
| Heat pump water heaters | $1,750 |
| Heat pump clothes dryer | $840 |
Even better, purchases related to "enabling measures" — that is, all the insulation and air sealing work we mentioned to go along with your new heat pump — qualify for rebates as well. Just be sure to note that these rebates and tax credits are expected to become available toward the end of 2023. Once they have been rolled out on a state-by-state basis, they will remain available until September 30, 2031.
Similar to HEEHRA, HOMES allocates $4.3 billion dollars to individual states to provide homeowners with rebates on projects related to energy efficiency. However, the rebates issued through HOMES are a bit different.
HOMES offers rebates based on home performance measured by two distinct models: modeled-performance and measured-performance rebates.
Modeled-performance rebates are based on the projected ability of how much an improvement — in this case, your new heat pump — improves your home's energy efficiency. This is determined by a BPI-2400-compliant energy modeling software that will establish an initial baseline for your home's energy usage and propose a new model based on its historical usage.
What does that look like in practice? Let's say you installed your new heat pump and are ready to go, and you qualify as a low or moderate-income home (HOMES income requirements are the same as HEEHRA's):
Energy system savings of at least 35% make you eligible for the lesser of $8,000 or 80% of the project cost
Energy system savings of less than 35% but more than 20% make you eligible for the lesser of $4,000 or 80% of the project cost
If you qualify as a high-income home, the numbers look like this:
Energy system savings of at least 35% are eligible for the lesser of $4,000 or 80% of the project cost.
Energy system savings of less than 35% but more than 20% are eligible for the lesser of $2,000 or 80% of the project cost.
Unfortunately, projects that result in energy savings of less than 20% aren't eligible for rebates, regardless of cost.
Measured-performance rebates are based on your home's actual energy performance. That means using an approved open-source measurement and verification (M&V) software to confirm your home's energy efficiency. These rebates are structured similarly to the modeled-performance rebates previously discussed:
For low- and moderate-income homes: Retrofits that achieve energy system savings of at least 15% are eligible for a payment rate per kilowatt hour saved, or kilowatt hour-equivalent saved, equal to $4,000 for a 20% reduction of energy use for the average home in your state or 80% of the project cost.
For high-income homes: Retrofits that achieve energy system savings of at least 15% are eligible for a payment rate per kilowatt hour saved, or kilowatt hour-equivalent saved, equal to $2,000 a for a 20% reduction of energy use for the average home in your state — or 50% of the project cost.
Projects that result in energy savings of less than 15% aren't eligible for rebates. Additionally, the bill doesn't specify that homeowners pursuing measured-performance rebates are automatically given the lesser of the amounts above, but it may be wise to operate under that assumption.
HEEHRA rebates are simple: They're triggered at point-of-sale, which means savings should be applied right at checkout. HOMES will likely require an extra bit of work, however, specific guidance isn't yet available.
Since performance measurements are critical to calculating savings, documentation will likely be involved related to the amount of energy saved (or expected to be saved), along with any costs tied to purchases or installation. It is possible for individual states to choose not to participate in these rebate programs. Fortunately, tools like the Rebates Finder in Green Door automatically update with available rebates programs, so check your account frequently to see if there’s a HOMES rebate available in your state.
Is it possible to look forward to tax season? If you buy a new heat pump between now and 2033, it very well may be. The 2022 IRA has introduced a series of tax credits to help homeowners save as they undergo environmental-friendly home upgrades. Keep in mind that these credits will begin to shrink in 2033, when they'll drop from 30% to 26%, and down again to 22% in 2034.
Specifically, the following two tax credits will be the most helpful in offsetting the cost of your new heat pump.
If you're moving forward with a heat pump conversion, Code § 25C will be your best friend. Homeowners who make efficiency upgrades, such as switching to or upgrading your heat pump, can claim a rebate of up to $1,200 or 30% of the project costs on their annual tax returns.
All told, in fact, homeowners who install heat pumps can claim up to $2,000. Even better, additional insulation work also qualifies, and homeowners who elect to undergo a home energy audit through their utility provider can claim an additional credit of $150. In total, homeowners can claim up to $3,200 in energy efficient home improvement tax credits each year.
Under Code § 25D, homeowners can qualify for a 30% tax credit on purchases of or expenditures related to certain clean energy purchases. That involves upgrades like solar or wind power generation, but geothermal heat pumps that meet ENERGY STAR® requirements are also eligible here.
Note that, in order to qualify, any purchases you make must be for use at your primary residence. That is to say, while it’s true that you can claim credits for a vacation home or rental property, the percentage will be reduced and based on the amount of time you spent living on premises during the year.
One final piece of good news: Claiming these credits is actually relatively simple. Just file IRS Form 5695 as part of your tax return. Calculate the credit on Part I, and enter the total on your 1040. If, when it's all said and done, your credit is greater than the amount of income tax you have due, the difference will be carried over to the following year. As a bonus, if you forget to claim the credit one year, you can still file an amended return to get your savings.
We hope this guide has helped understand the fundamentals of heat pumps and home performance.
As for next steps, we recommend you start by downloading the Green Door app from Pearl Certification. And then:
Decide whether a ducted heat pump system, a ductless mini-split, or a geothermal heat pump, if available, is ideal for your home and location.
Use the Green Door app to find a home energy auditor to evaluate your home’s insulation and air sealing and make sure they’re set up to maximize a heat pump’s efficiency.
Make a list of questions to ask a contractor before contacting them about installing a heat pump, then use the app to find a Pearl Network HVAC installer in your area.
Check the Green Door Rebates Finder to identify rebates and/or tax credits you can claim to reduce the cost of heat pump conversion.
Once your heat pump is installed, be sure to add it to your home’s profile in Green Door — or if you work with a Pearl Network Contractor, it’ll be added automatically. Once added, you’ll see you’ve accrued some serious Pearl Points toward a Silver, Gold, or Platinum Pearl Certification.
If a heat pump is just one part of your journey to a high-performing home, be sure to add your other energy-efficient assets (watch those Pearl Points add up!) and then generate a customized Home Investment Plan to see where else you can improve your home’s comfort, health, and value.
Getting ready to sell or refinance? Use Green Door to find a Pearl Real Estate Network Member who knows how to market the value of your high-performing home. They’ll do that with the help of a Pearl Certification, which you can also request in the app. A Pearl Certification captures and makes visible the value your high-performance home improvements have added to your home, so you can earn a return on your investments. Each certification includes details on your upgrades, the Appraisal Institute’s Green and Energy Efficient Addendum, and marketing materials you and your agent can use to showcase your investments. On average, Pearl Certified homes earn a 5% premium over uncertified homes when marketed properly.
That’s some serious value, and it’s only available through Pearl and Green Door.
Pearl Certification is transforming the housing market. We’re making a visible difference nationwide for homeowners and the businesses that serve them.
