Will U.S. Households Still Buy Heat Pumps Without a Tax Credit? – Energy Institute Blog

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From 2023-2025 there was a $2,000 U.S. income tax credit for heat pumps. Not anymore.

The last few years were a great time to buy a heat pump. U.S. households installing a heat pump during 2023, 2024, and 2025 could claim a 30% income tax credit up to $2,000.

Not anymore. This tax credit expired at the end of 2025. If you installed a heat pump on December 31, 2025, you could claim a $2,000 credit. The next day, January 1, 2026, zilch.

Will U.S. households still buy heat pumps without a tax credit? It costs about $7,000 to install an air-source heat pump in the United States, so a $2,000 tax credit is a substantial discount.

So what do you think happened to heat pump shipments? (A) Declined more than 90%, (B) Declined 70% to 90%, (C) Declined 50% to 70%, or (D) Declined less than 50% or not at all.

Heat Pump Shipments

The answer is D. In fact, it does not look like U.S. heat pump shipments have declined at all. The figure below plots monthly shipments of air-source heat pumps from September 2025 to April 2026. These data come from the Air Conditioning, Heating, and Refrigeration Institute, a trade association representing 90%+ of the U.S. heating and air-conditioning equipment market.

If the tax credit mattered for heat pump sales, you would have expected to see a sharp decrease in shipments beginning in 2026. There is no decrease.

These data describe shipments – not installations – so it is possible that the pattern is somewhat different for installations. But, if anything, shipments have been somewhat stronger thus far in 2026 compared to the final months during 2025, which is not what you would expect if installations had declined sharply.

There is also no evidence of anticipation. This is interesting and surprising. With the tax credit expiring, you might have thought that households would have rushed out to install heat pumps at the end of 2025. When rooftop solar subsidies phased out in California in April 2023, there was a huge spike in interconnection applications. But there was no such spike with heat pumps.

It is almost as if the tax credit didn’t matter at all.

Why No Decline?

I would be very interested to hear other explanations from readers, but what I suspect is that the U.S. tax credit for heat pumps has never been particularly well-known or particularly effective at increasing heat pump adoption.

Instead, I think that most U.S. heat pump adopters are non-additional. That is, that most adopters in 2023, 2024, and 2025 would have installed a heat pump even without the tax credit. I suspect most households adopted heat pumps without ever knowing anything about the credit, or didn’t learn about the tax credit until months later when filing their taxes.

The flip side is then, if most adopters are non-additional, then when the credit goes away, there is little change in heat pump adoption.

Comparison to Rooftop Solar

Interestingly, the expiration of a similar tax credit for rooftop solar seems to have hurt that sector significantly (here, here). A Bloomberg article talks about how the U.S. residential solar industry is “cratering”, and not expected to recover “anytime in the next decade”.

What’s the difference? In part, I think this reflects that the tax credit for rooftop solar was simply better known. Both tax credits were first introduced in 2006, but the rooftop solar subsidy has been much more generous for many more years. In contrast, the heat pump subsidy was capped in most years at $300 up until 2023 when it was increased to $2,000 under the Inflation Reduction Act.

In addition, I think rooftop solar installations are more discretionary. A household installs rooftop solar by calling up the installer and scheduling a date. In contrast, heat pump installations tend to happen with new housing construction and/or when old heating equipment fails. I’m not saying there is no discretion with heat pump installations, but I do think there is less.

Alternative Explanations

Or is there something else going on, that could explain the robust market for heat pumps?

Natural gas prices were high in January 2026, which could have helped bolster demand for heat pumps. But these high natural gas prices were short-lived, with prices plummeting in February and remaining low since. So natural gas prices seem unlikely to be the explanation.

Was there an increase in state-level incentives? It is true that some states offer incentives for heat pump installations (e.g. here). But most states do not, and I am not aware of any large increase in state-level incentives that occurred right at the same time the U.S. tax credits phased out.

Or is there a seasonal pattern in heat pump shipments that biases the data? I don’t think so. Below, I plot shipment data from 2023/2024 and 2024/2025. The tax credit...