Colorado Heat Pump Tax Credits

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Starting January 1, 2024, Coloradans can take advantage of tax credits to install heat pumps for space heating and cooling and water heating. Heat pumps are a highly efficient technology that can save Coloradans money on energy costs, while improving indoor air quality and reducing greenhouse gas emissions from buildings.

Heat Pump Tax Credit Frequently Asked Questions

Eligibility

The heat pump tax credit is available to install the following types of heat pumps or other technology:

  • Air-source heat pump
  • Ground-source heat pump
  • Water-source heat pump
  • Combined-source heat pump
  • Heat pump hot water heater
  • Thermal energy network
  • Variable refrigerant flow heat pump system

All heat pumps must be Energy Star certified. Air source heat pumps must be variable speed, and in split systems, must be Air-Conditioning, Heating, and Refrigeration Institute (AHRI) ‘matched’ systems. Heat pumps for space heating/cooling must be designed to meet at least 80% of annual heating needs. More detail about specific requirements for each type of technology is available in the Heat Pump Tax Credit Frequently Asked Questions.

Tax credit amounts

The tax credit is split between the registered installing contractor and the customer. Registered contractors are required to provide the tax credit to customers as a discount off the cost of installing eligible heat pump technology. The table below outlines the minimum required discount a customer will receive for heat pumps installed in 2024. 

2024 Heat Pump Tax Credit and Minimum Customer Discount Amounts

Heat pump technology

Total tax credit amount (2024)

Minimum required customer discount for heat pumps installed in 2024

Air-source

$1,500

$499.95

Ground-source, water-source, or combined-source

$3,000

$999.90

Heat pump water heater

$500

$166.65

 

Registered contractors may retain up to two-thirds (or 66.67% for calculation purposes) of the tax credit for heat pumps installed during the 2024 tax year. Contractors must pass through the remaining value as a discount to the customer.

Contractors must clearly and separately display this discount on the customer’s invoice/receipt. For ease of identification, all discounts for the customer should be displayed as “State of Colorado Heat Pump Discount” on invoices. See a sample invoice.

The heat pump tax credit is fully refundable. If the total amount of heat pump tax credits claimed by a registered contractor in a given taxable year exceeds their state income tax due for that tax year, the excess heat pump tax credit amount will be refunded back to the registered contractor. Thus, registered contractors with little or no state income tax liability are still able to benefit from the heat pump tax credit.

Note that the total tax credit amounts will decrease in tax year 2026 and again in tax year 2029, which will impact customer discount amounts. The Colorado Energy Office will annually review and evaluate the effectiveness of the tax credits and may modify the established percent distribution between registered contractors and customers.

Multifamily buildings

For a heat pump that serves more than one unit in a multifamily building, a registered contractor may claim one tax credit for each unit served by that heat pump. For example, one air source heat pump system ($1,500 tax credit) installed to serve all three units in a triplex would be eligible for $4,500 in tax credits before the customer discount. Contractors must provide one-third of the total tax credit amount to the customer at the time of installation.

For tax credit eligibility, the heat pump technology must be a primary heat source (designed to serve 80% of heat load).

Non-residential buildings

Total tax credit amounts for non-residential buildings are determined by the total installed heating capacity. Registered contractors will claim the tax credit amount for every 4 tons of installed capacity, up to 100 tons per building. For example, installing air-source heat pumps ($1,500/4 tons of capacity) totaling 80 tons of heating capacity in a building would be eligible for a tax credit of $30,000 before the customer discount. Contractors must provide one-third of the tax credit amount to the customer at the time of installation.

For tax credit eligibility, the heat pump technology must be a primary heat source (designed to serve 80% of heat load).

Thermal energy networks

Those installing thermal energy networks may combine the credits for each connected residential and nonresidential unit.

How it works

All Coloradans who install an eligible heat pump through a registered contractor will receive a portion of the tax credit as a discount at the time of installation. Click the link below to view a preliminary list of registered contractors. Note that this list will grow as the State continues registering contractors.

See list of approved registered contractors

Customers do not need to file any paperwork to receive the discount since the tax credit is retained by the installing contractor.

Those seeking a tax credit on equipment placed into service in 2023 should continue to use form DR 1322 with the Department of Revenue.

Becoming a registered contractor

Registered contractors will provide the appropriate percentage of the heat pump tax credit to Colorado customers as a discount at the time of heat pump installation. The State will then reimburse registered contractors through a tax credit when the contractor files taxes.

Contractors will need to create an account to submit a registered contractor application. This ensures that you will receive communication about your application and future heat pump tax credit information.

Apply to become a registered contractor

To receive the tax credit, a registered contractor must complete and submit the necessary paperwork to the Department of Revenue for the installed equipment. The Department of Revenue anticipates having forms ready to claim the tax credit in late 2024.