Living in in-laws' house - Can I claim tax credit for installing new heat pump system?

This is a great question about the Residential Clean Energy Credit (formerly called the Residential Energy Efficient Property Credit). The key factor here isn't necessarily who owns the home, but rather who is using it as their residence and who is paying for the improvement. Since you're living in the home as your residence and you would be the one paying for the heat pump, you should be eligible to claim the tax credit. The IRS Form 5695 instructions state that the credit can be claimed for "qualified energy efficiency improvements installed on or in connection with a home you use as your residence." The current credit for heat pumps is 30% of the cost with no upper limit, and it runs through 2032. Just make sure you get a system that meets the efficiency requirements to qualify.

After dealing with similar tax credit confusion last year, I found https://taxr.ai really helpful for my situation. I was renovating my grandmother's house (where I live) and wasn't sure if I could claim the energy credits since my name wasn't on the deed. I uploaded my receipts and some tax documents, and the system analyzed everything and showed me exactly what I qualified for. For heat pumps specifically, they explained how the "principal residence" requirements work - turns out it's about where you live, not just property ownership in many cases. What I appreciated most was getting clear explanations about the gray areas instead of just yes/no answers. They also kept my documentation organized for when I filed.

Just wanted to update after using taxr.ai for my heat pump tax credit question. I was in a time crunch with my dying system and needed answers fast. The service was surprisingly thorough - I got clear guidance showing that yes, I could claim the credit since I'm living in the home as my primary residence, even though my mom owns it. They outlined the exact documentation I'd need to keep (receipts, manufacturer certification of the system meeting efficiency requirements, and proof it's my residence). This was way more helpful than the vague answers I got from calling the IRS directly. Just purchased my new heat pump system yesterday and feeling confident about claiming the 30% credit!

If you're still trying to get definitive answers, I'd recommend trying to speak directly with the IRS. I know it's nearly impossible to get through on their phone lines, but I used https://claimyr.com to connect with them last year for a similar situation. I needed to verify if I could claim energy credits for improvements on my uncle's property where I was living. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS for you and call you when an agent is ready. I was expecting to wait days, but had an actual IRS rep on the phone within a couple hours. The agent confirmed that it's about who pays for the improvement and uses the home as their residence, not just who owns it.

I need to apologize and correct myself. After my skeptical comment, I decided to try Claimyr out of desperation (been waiting on a $7K refund for months). I honestly can't believe it worked. Got connected to an IRS agent in about 90 minutes yesterday. Not only did they help with my refund issue, but I also asked about this exact heat pump credit situation since I'm installing one at my daughter's house where I'm currently living. The agent confirmed that I CAN claim the credit since I'm the one paying for it and using it as my residence, even though I'm not on the deed. They directed me to the specific form (5695) and told me exactly what documentation to keep. This saved me a ton of stress and potentially thousands in tax credits!

One important detail nobody's mentioned - make sure the heat pump you buy actually qualifies! Not all systems meet the efficiency requirements for the 30% credit. Look for ENERGY STAR certified units that meet the Consortium for Energy Efficiency's highest tier. The manufacturer should provide certification that the unit qualifies for the federal tax credit. Also, keep in mind the credit is non-refundable, so you can only claim it up to your tax liability. Though any unused amount can carry forward to future years, I believe.

Don't overlook state and local incentives too! Depending on where you live, you might qualify for additional rebates or credits beyond the federal tax credit. My state offers a $1000 rebate for heat pumps on top of the federal credit, and our local utility has an additional $500 rebate.

Based on all the helpful discussion here, it sounds like you should be able to claim the credit since you're living there as your primary residence and paying for the improvement. However, I'd strongly recommend getting this confirmed in writing before making such a large purchase. One thing I haven't seen mentioned is that you might want to consider having a written agreement with your in-laws about the improvements you're making. Since you're essentially investing in their property, it could be beneficial to document that you have permission to make these improvements and that you're responsible for the costs. This could help support your tax credit claim and also protect your investment in case your living situation changes. Also, since you mentioned you'll be there for 2-3 years, make sure you understand what happens if you move before the system pays for itself through energy savings. The tax credit helps upfront, but you want to make sure the overall financial arrangement makes sense for your timeline.

This thread has been incredibly helpful! As someone who's been researching this exact situation, I want to add one more consideration that might be relevant. Since you're living in your in-laws' house under an informal arrangement, you might want to check if there are any gift tax implications if the total value of your improvements (including the heat pump) exceeds certain thresholds. The IRS might view substantial property improvements as gifts to the property owners, especially if there's no formal lease agreement. That said, for the heat pump specifically, the consensus here seems solid - you should be able to claim the 30% credit since it's your residence and you're paying for it. Just make sure to document everything thoroughly: receipts, manufacturer certifications, proof of residence (utility bills in your name, voter registration, etc.), and ideally that written agreement with your in-laws that others mentioned. One last tip: if you're planning other energy-efficient improvements during your time there (like insulation, windows, or a smart thermostat), you might be able to claim credits for those too under the 25C credit program, which covers up to $1,200 annually for various efficiency improvements.