Colorado heat pump incentives: Federal credit ending, but local rebates remain in 2025

Ready to swap your furnace and AC for an all-in-one heating and cooling system? Colorado homeowners can save thousands by switching to energy-efficient, all-electric heat pumps—and if you install yours this year, you could save an extra $2,000.

Modern heat pumps are built to handle Colorado winters. They heat and cool your home, potentially replacing both your furnace and air conditioner with a single system that reduces monthly energy costs while providing more consistent comfort. Heat pumps are more energy-efficient than traditional heating systems. When you pair a heat pump with solar panels, you can run your heating and cooling on free electricity from your roof.

Recent federal policy changes moved up the end date for heat pump tax credits. The Energy Efficient Home Improvement Credit (25C), once expected to last into the 2030s, now expires after December 31, 2025.

That makes 2025 the best time to act. Install your system before the end of this year, and you can still claim up to $2,000 in federal tax credits—on top of long-term energy savings.

Plus, most Colorado homeowners can stack federal credits with utility rebates for even bigger savings. We’ll break down the incentives available now and how they can maximize your savings.

Colorado residents can claim federal heat pump incentives through two main tax credit programs. While these credits have accelerated deadlines due to the One Big Beautiful Bill Act (OBBBA) signed in July 2025, heat pumps remain a valuable investment for their energy efficiency and long-term savings even after federal incentives expire.

Air source heat pumps: Energy Efficient Home Improvement Credit (25C)

This credit covers residential air-source heat pumps that meet the efficiency requirements.

• Deadline: Your heat pump must be installed and placed in service by December 31, 2025.

• Credit amount: 30% of installation costs, capped at $2,000. 

Geothermal heat pumps: Residential Clean Energy Credit (25D)

This credit applies to geothermal heat pump systems and other renewable energy installations, like home solar panel systems:

• Deadline: System must be placed in service by December 31, 2025 for full credit rates. 

• Credit amount: 30% of total system cost with no cap.

Home Energy Rebates Program

Income-dependent rebates of up to $8,000 might become available through federal funding, but several factors make these uncertain:

• No solid timeline: According to Energy Smart Colorado, federal funds for additional Colorado residents are expected in winter 2025/2026. 

• Limited funding: Funding constraints mean not all interested homeowners will receive rebates.

• No retroactive benefits: The rebates won't apply to systems installed before the program launches.

• Complex application process: These rebates are expected to have strict income requirements and a lengthy approval process—which means you may not even qualify.

If you need a heat pump now, don't wait for future rebates. The savings available today through federal tax credits and utility programs provide plenty of value.

As of January 1, 2024, Energy Star-certified heat pumps are eligible for significant savings through a contractor-based tax credit program. The HVAC contractor that installs your heat pump receives the tax credit, while you receive a discount at the point of sale. 

Contractor tax credit

• $1,500 credit for air-source heat pumps. 

• $3,000 credit for geothermal heat pumps. 

• Your savings: Installers are obligated to pass along a portion of the discount to you (at least one-third, or $500 for air-source heat pumps).

• Equipment requirements: System must be Energy Star-certified. 

The tax credit amounts will decrease in 2026 and again in 2029, meaning you’ll save more if you install your system in 2025. The Colorado Energy Office reviews the program annually and may adjust how the credit is split between registered contractors and customers.

Several utility companies offer rebates that can stack on top of the state and federal programs.

Xcel Energy

The rebate that applies to the greatest number of Coloradans comes from Xcel Energy, the main electric utility in the Denver and Boulder metro areas. Its heat pump rebates, as of 2025, if you work with a qualified contractor, are:

• Air source heat pump: $300/cooling ton

• Cold climate heat pump: $750/heating ton

Xcel also offers limited-time bonus rebates that can triple rebate amounts. However, the program has reached capacity for customers replacing an existing electric heating system. Starting November 16, 2025, only standard rebates will be available to these customers until further notice. 

Other Colorado utilities

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 more than 40 programs in Colorado offering rebates for energy efficiency as of September 2025.

Rebates might also be available through your city or county government. For example, Denver has its own heat pump rebate program worth 40% of total costs, capped at $1,200, while Boulder County residents can find rebates worth up to $400 through Energy Smart Colorado.

A quick Google search for your town name and "heat pump rebate" should steer you in the right direction. Each utility and municipality has its own process for claiming the incentives, so consult the relevant websites for instructions.

One of the biggest advantages of Colorado heat pump incentives is that you can stack them. In addition to the upfront savings, your system will continue to save money on energy bills for years to come. Even without the federal tax credit after 2025, combining energy efficiency improvements and utility rebates makes heat pumps a smart investment.