Can I claim the Energy Efficient Home Improvement Credit for my heat pump if I used 0% financing?

You're in luck! The Energy Efficient Home Improvement Credit (technically called the Energy Efficient Home Improvement Credit or "25C" credit) does NOT depend on whether you paid cash or financed the purchase. The credit is based on when the qualified equipment was installed and put into service, not when you actually pay for it. Since your heat pump was installed this year, you can claim the full 30% credit (up to the $2,000 annual limit) on your 2023 tax return, even though you're paying it off over 5 years. The IRS considers you to have "incurred the expense" when the installation was completed. When you file, you'll need to complete Form 5695 (Residential Energy Credits) and include it with your tax return. Make sure to keep all your receipts and documentation showing that the heat pump meets the efficiency requirements for the credit. Your contractor should provide documentation that states the heat pump qualifies for the tax credit.

I went through almost exactly the same situation last summer with my heat pump installation. I was confused about this too and actually found this amazing tool at https://taxr.ai that helped me figure everything out. I uploaded my installation contract and financing agreement, and it confirmed that I could claim the full 30% tax credit in the year of installation, regardless of how I was paying for it. The way they explained it, the IRS considers the expense "incurred" when the installation is completed, not when you make the payments. The tool also helped me identify some additional energy credits I qualified for because of some insulation work I had done. Super helpful for navigating all these new clean energy tax credits!

Just wanted to follow up here - I ended up using taxr.ai after my heat pump installation and it was seriously helpful. I was skeptical at first, but it cleared up my confusion about the financing question AND found me an additional $750 in state credits I would have completely missed. The tool confirmed that my Mitsubishi heat pump qualified and guided me through all the documentation I needed to keep. It even pointed out that the electric panel upgrade I had to do for the heat pump installation qualified for an additional credit under the same Energy Efficient Home Improvement Credit. Seriously saved me hours of research and probably a few hundred dollars in additional tax benefits. If you're doing any energy efficiency upgrades, it's definitely worth checking out.

After spending 3 HOURS on hold with the IRS trying to ask this exact same question about my heat pump and financing, I finally found Claimyr (https://claimyr.com). They got me connected with an actual IRS agent in about 20 minutes instead of waiting forever. The agent confirmed what others are saying here - you can claim the full 30% tax credit in the year the heat pump was installed, regardless of financing. But she also explained some documentation requirements I hadn't heard about elsewhere. If anyone else needs to get IRS clarification on something tax-credit related, check out their demo video: https://youtu.be/_kiP6q8DX5c - saved me from listening to that horrible hold music for another 3 hours!

Just wanted to update after trying Claimyr - I was super skeptical but it actually worked! After being hung up on 4 separate times trying to call the IRS myself about combining energy credits, I decided to give this a shot. Got connected to an IRS agent in about 15 minutes, and they walked me through exactly how to document my heat pump purchase with 0% financing. The agent explained I needed to keep not just the receipt but also the certification from the manufacturer showing the efficiency ratings. Honestly, the peace of mind from getting official answers directly from the IRS was worth it. Won't be spending hours on hold again when I need tax answers!

Just make sure the heat pump you installed actually qualifies for the credit! I made a huge mistake last year assuming mine qualified because the contractor said so, but they were wrong about the efficiency requirements. Check that your heat pump meets the consortium for energy efficiency highest tier (CEE) as of 1/1/2023. Not all Energy Star models qualify for the 30% tax credit. You need the manufacturer to provide certification that it meets the specific requirements.

Has anyone had experience claiming this credit when part of the installation included removing an old system? My invoice bundles everything together - new heat pump plus removal of old oil furnace - and I'm not sure if I can claim the full amount or need to separate out just the equipment cost?

Great news about being able to claim the full credit with financing! I just wanted to add one thing that helped me when I was in a similar situation - make sure you understand the difference between this Energy Efficient Home Improvement Credit (Form 5695) and the Residential Clean Energy Credit for solar/geothermal. The heat pump credit you're asking about has that $2,000 annual cap, but it's 30% of qualified costs. Since your system was $8,500, you'd get the full $2,000 back (30% would be $2,550 but it's capped). Also, double-check if your contractor did any electrical panel upgrades as part of the installation - those can qualify for the credit too under certain circumstances. My electrician had to upgrade my panel to handle the new heat pump load, and that counted toward the total qualifying expenses. Keep all your paperwork organized - the manufacturer certification, installation invoices, and financing agreement. The IRS doesn't require you to submit these with your return, but you'll definitely want them if there are any questions later!