Governor Polis and the Colorado Energy Office Celebrate New Tax Incentives to Lower Cost of High Efficiency Heating and Cooling

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DENVER ~ Denver, CO - In a move towards a more sustainable future, Governor Polis and the Colorado Energy Office have announced the availability of new Colorado Heat Pump Tax Credits. These tax credits aim to assist Coloradans in installing eligible heat pump technology for space heating and cooling, as well as water heating.

The use of heat pumps not only reduces greenhouse gas emissions but also improves indoor air quality and lessens demand on the electric grid during peak summer days. Additionally, it can save Coloradans money in the long run. The tax credit was established by the Colorado legislature through HB23-1272 "Tax Policy that Advances Decarbonization," sponsored by Representatives Mike Weissman and Junie Joseph and Senators Steve Fenberg and Lisa Cutter.

Governor Polis stated, "These tax credits will help Colorado become more sustainable while saving Coloradans money. Too often, Coloradans are victims of natural gas price spikes. By transitioning to efficient electric heat pumps, they can be protected from the high and volatile costs of natural gas."

According to data, natural gas use in buildings is among the top five sources of greenhouse gas emissions in Colorado. Therefore, increasing the adoption of highly efficient heat pumps for space heating/cooling and water heating is a key strategy to reduce emissions from the buildings sector and move closer to meeting the state's target of net-zero emissions by 2050.

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Executive Director of the Colorado Energy Office Will Toor said, "Electric heat pumps are an important part of the future of heating in a clean energy Colorado. The state's heat pump tax credit is designed to reduce upfront costs for installation, encourage expansion of the heat pump workforce, and accelerate adoption of this innovative, efficient, cost-saving technology."

Residents, businesses, and other organizations can receive a portion of the tax credit as an upfront discount on installation costs through a registered contractor. The list of registered contractors is expected to continue growing over time. Customers who receive the State of Colorado Heat Pump discount can also combine it with other incentives, including local government and utility rebates and federal tax credits.

Recognizing the need for a qualified HVAC workforce to support widespread adoption of electric heat pumps, the state has implemented measures to encourage more contractors to join the market. Contractors must provide at least one-third of the tax credit amount as a discount to customers at the time of installation. However, in 2024, contractors may retain up to two-thirds (66.67%) of the tax credit for heat pumps installed during that year.

The tax credit amounts vary depending on the type of heat pump technology installed. For air-source heat pumps, the total tax credit amount is $1,500, with a minimum customer discount of $499.95. Ground-source, water-source, or combined-source heat pumps have a tax credit amount of $3,000 and a minimum customer discount of $999.90. Heat pump water heaters have a tax credit amount of $500 and a minimum customer discount of $166.65.

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These tax credits are available for registered contractors installing heat pumps in single-family homes, multifamily buildings, and nonresidential buildings. For multifamily buildings, one tax credit can be claimed for each residential unit served by a heat pump system. For nonresidential buildings, one tax credit can be claimed for every four tons of installed heating capacity, up to 100 tons.

Contractors installing thermal energy networks (ground source heat pumps at multiple sites connected by underground pipes) can combine credits for each connected residential and nonresidential unit.

The heat pump tax credit is fully refundable, allowing all registered contractors to benefit from it regardless of their state income tax liability. Contractors will claim their credits by filing their income tax return with the Department of Revenue in late 2024.

More information about the Colorado Heat Pump Tax Credit can be found on their webpage. Additionally, residential and commercial building owners who purchased and installed qualifying heat pumps in 2023 may be eligible for a tax credit equal to 10% of the purchase price. To claim this income tax credit, the building owner must complete and submit form DR 1322 to the Colorado Department of Revenue, in collaboration with the installing contractor, and claim the credit on their 2023 income tax return. More information is available on the Department of Revenue website.

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