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Colorado heat pump rebates and tax credits: 2023 guide

Ready to swap your furnace and AC for an all-in-one heat pump? Most Coloradans should qualify for at least a few thousand dollars in savings on these high-efficiency, environmentally friendly HVAC systems—including new models that can handle the coldest days of the Colorado winter.


Key takeaways

  1. Heat pumps and heat pump water heaters are exempt from Colorado’s 2.9% sales tax.

  2. Coloradans can also claim a state tax credit of 10% of the cost of a heat pump—the equipment, not the total cost of installation.

  3. A federal tax credit of $2,000 (or 30% of the cost, whichever is less) is also available.

  4. Larger, income-dependent rebates of up to $8,000 (earmarked in the Inflation Reduction Act) might become available in 2023.

  5. Xcel Energy, a major utility company, offers a $2,000 rebate for cold-climate heat pumps, and $1,500 for other high-efficiency heat pumps.

  6. Lots of local governments, utilities, and partner organizations also offer incentives.

What heat pump rebates are currently available in Colorado?

A new law that took effect on January 1, 2023 means that Coloradans who buy heat pumps and heat pump water heaters qualify for statewide savings.

Statewide tax benefits

  1. A new state tax credit (10%) against the cost of the equipment, up to the amount that you’ve paid in state taxes. For now, it’s only on the books for 2023 and 2024, though it could be extended.

  2. A sales tax exemption (2.9%). The seller simply won’t charge the tax, so you’ll get the savings at the point of sale.

Keep in mind that these are discounts on the price of the equipment, not the total cost of installation. In most cases, it’ll tally up to savings of a few hundred dollars.

Federal incentives from the Inflation Reduction Act

Coloradans are also eligible for all of the heat pump incentives available through the Inflation Reduction Act of 2022 (IRA). We’ve covered those benefits in detail here, but in summary:

  1. Any household can claim a $2,000 federal tax credit (or 30% of the price, whichever is less) against the cost to install an air-source heat pump that meets modest efficiency requirements. Since it’s a credit, you’re only eligible if you pay at least that much in taxes.

  2. Larger, income-dependent rebates of up to $8,000 look like they’ll be available in late 2023 or early 2024, according to Energy Smart Colorado. If you’re counting on those rebates, you should wait until they’re announced—they’re highly unlikely to apply retroactively to previous purchases.

Local programs

In addition, many utility companies, local governments, and their partner organizations offer extra rebates that can stack on top of the state and federal programs.

The one that will apply to the most Coloradans comes from Xcel Energy, the main electrical utility in the Denver and Boulder metro areas. Their heat pump rebates as of April 2023, if you work with a qualified contractor, are:

  1. $2,000 off the total cost of installation for a cold-climate heat pumps (or high-performance mini-splits—basically the same thing).

  2. $1,500 for other air-source heat pumps that meet more modest efficiency and performance specs.

If you’re served by a different utility company, they probably have some kind of rebate, too. According to DSIRE, a database of clean-energy incentives, there are 52 programs in Colorado offering money for heat pump adoption as of April 2023. (Filter by technology -> energy efficiency -> HVAC -> heat pumps to find them.)

That database doesn’t include rebates that might be available through your city or county government. For example, Denver has its own heat-pump rebate program, while Boulder County residents can find rebates through Energy Smart Colorado. A quick Google search for “[your town name] heat pump rebate” should steer you in the right direction.

Start shopping for heat pumps

When you sign up for the EnergySage Heat Pump Marketplace, you’ll get an instant estimate of how much it might cost to install a heat pump in your home, based on real-world quotes for similar homes from vetted installers. You can schedule consultations with seasoned pros. If you want some independent guidance, one of our Energy Advisors can help you through the process. We’re already the country’s largest marketplace for solar energy, and now we’ve brought that clean-energy experience to heat pump shopping. Learn more here.

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