Low Income Households Save Big With California Heat Pump Subsidies

Two new pilot programs have been approved by the California Public Utilities Commission to make California homes more climate-friendly and affordable to heat. The $200 million in funding will boost the market for efficient electric heating equipment and will provide incentives to all-electric new housing, with a focus on low-income households.

In addition to government incentives, installing a heat pump instead of a furnace or central air conditioner can help you save money on your utility bills. The total amount of money you will save by purchasing a heat pump will vary depending on the cost of natural gas in your area, number of windows in your home, climate, season, and type of insulation behind your walls.

Installing a heat pump system in your home has so many benefits. But what is a heat pump? How does it work? Is it worth the cost to have a heat pump installed? Will I save money with a heat pump? We will answer those questions and more below.


What is a Heat Pump?

A heat pump is an appliance that warms and cools your home. In the summertime, they work like any other air conditioning unit, removing heat from the air inside and pushing cooled air back into the home. In the cooler months, they do the opposite by drawing heat energy from the air outside and moving it into your home to warm things up. It is a more energy-efficient alternative to a furnace and AC compressor.

The biggest difference between heat pumps and traditional heating and cooling systems is that they are designed to be ultra-energy efficient. This is because heat pumps only move heat, instead of generating it by combusting a fuel source. The system requires an outdoor and an indoor unit (unless using the less common geothermal system), which work together to suck up hot air and introduce it to an inside space or expel it outside.

Electric heat pumps also emit less carbon than other heating and cooling options, all while providing two to five times more heating energy than the energy you put into it, on average. As a result, a heat pump is an environmentally friendly HVAC system that is also good for your budget. Most heat pumps also use inverter technology, which lets the compressor run at more nuanced and variable speeds, so you’re using only the exact amount of energy necessary to maintain comfort.

Heat pumps are most popular in the Southern states. In North Carolina and South Carolina, for example, more than 40% of homes have heat pumps. Since electricity powers heat pumps, they have been slow to catch on in areas with mostly older homes with gas hookups. Generally, gas is less expensive than electricity, so people with access to a gas utility often prefer to use it for their heating needs.


Why Heat Pumps?

Heat pumps are ideal for California’s dry, temperate climate and can be used for space heating, air conditioning, and water heating. Heat pumps also give customers greater control than conventional technologies, which leads to more comfortable homes.

According to the California Air Resources Board, 85% of on-site building emissions come from space and water heating and cooling. Heat pumps are key to de-carbonizing buildings and achieving California’s zero-carbon goals.


Pollution-Preventing Heat Pump Upgrades

Gas appliances in homes and buildings are responsible for more lung-damaging nitrogen oxide (NOx) pollution than passenger cars. Heat pumps are highly efficient electric appliances that provide both heating and cooling by absorbing heat from a source and transferring that heat into or out of a home. Heat pumps are two to four times more efficient than gas furnaces.

For low-income communities, the health benefits of a transition to electric heat pumps will be immense. The Air District estimates that by reducing lung-damaging air pollutants, its appliance standard will prevent thousands of asthma symptom incidents and avoid premature deaths.

Policymakers have made sure that the cost of this transition away from fossil fuel heat does not fall on people already struggling with high housing and utility costs. Fortunately, the federal government and the State of California have already approved billions in subsidies to support households in accessing heat pumps.


Low Income Households Save Big With Subsidies

To qualify for the greatest benefits in the HEEHR program, a household must earn less than 80% of the median income in its area. For the owner of a multifamily building to qualify, at least half the building’s units must be occupied by low-income households.

By taking advantage of these state and federal subsidies, low-income homeowners and multifamily building owners pay less upfront to upgrade to clean electric heat pumps than they would to replace their gas appliances for a similar model that they already have. In addition, households that upgrade to heat pumps will gain access to efficient cooling.


Tax Credits and Rebates for Families

When homes need to replace their heating or cooling systems, families can get tax credits for efficient heat pumps that ensure comfortable home temperatures. By doing the job of both a furnace and air conditioner, heat pumps work to keep homes warm in the winter and cool in the summer.

Right now, households can receive a $300 tax credit for purchasing a heat pump.  The total of current and previous year’s credits, including those for energy efficiency improvements, high efficiency furnace and air conditioners cannot exceed $500.

Starting next year, households will be able to claim a tax credit for 30% of the costs of buying and installing a heat pump, up to $2,000 including support for any electric system upgrades needed to make the home heat-pump-ready.

Beginning in 2023 state programs will offer low- and moderate-income households rebates for heat pumps at the point-of-sale, cutting costs of purchase and installation up to $8,000. If home electrical upgrades are needed to integrate new heat pumps, rebates of up to $4,000 will also be available to households.


Who Qualifies for a Heat Pump Tax Credit or Rebate

Any taxpayer would qualify for the federal tax credits.

For the tax credit program, the new incentives will apply to equipment installed on January 1, 2023 or later. (A smaller tax credit of up to $300 for a heat pump meeting the CEE’s top tier of efficiency is available for heat pumps installed during 2022.)

The rebates depend on income. Specifically:

  • If your household income is less than 80 percent of your state’s median household income, you are eligible for 100 percent of the rebates available. So if you spend $10,000 on a heat pump and a heat pump water heater, you could get $9,750 back, depending on the specifics of your state’s rebate program.
  • If your household income is 80 percent to 150 percent of your state’s median income, you are eligible for 50 percent of the rebates available. So for a $10,000 heat pump and heat pump water heater, you could get $4,875 back, depending on specifics.
  • If your household income is more than 150 percent of your state’s median income, you are not eligible for these rebates.


How to Apply for a Heat Pump Tax Credit or Rebate

For the tax credits, you’d claim them on your federal income tax returns. We’re not yet sure which form you’ll need to complete, but in previous years, IRS Form 5695 was used for a similar residential energy credits program. A good tax preparer will know what to use, and programs like TurboTax often guide you in a way that makes it easy to claim relevant tax credits.

The rebate programs will vary from state to state, and are yet to be determined. They could be implemented through utility companies, or through state-run agencies. She also points out a line in the bill that seems to encourage the DOE and state programs to work together to make the rebates accessible at the point of sale—building it into the out-of-pocket cost for consumers. Bringing down the price from the start makes it a lot more equitable than something like a tax credit, where you’d have to wait [perhaps] upward of a year for a tax credit, or even a [typical] rebate program where you have to mail it in and wait a couple of months.



Give Us a Call

At Aire-Tech, we can help keep your home at the optimal temperature! We give you countless resources to help you explore and learn about HVAC options, including incentive programs. We work closely with agencies to pass on savings programs and information to our valued customers.

If your system needs repair or inspection, call Aire-Tech on 951-926-1002. You can also visit our Contact page and complete the contact form.