The furnace died in February, which is the only time furnaces ever die. The HVAC guy quoted a new gas unit at around $5,500 and, almost as an afterthought, mentioned a heat pump would run a couple thousand more but “you used to get two grand back on your taxes for it.” Used to. That word did a lot of work, because the federal tax credit he was thinking of expired on December 31, 2025.
So here’s the situation a lot of us are walking into in 2026. The famous $600 and $2,000 energy tax credits are gone for new projects, killed early by the One Big Beautiful Bill Act that passed in July 2025. The headlines still talk about them because the credits ran for years and people are still claiming them on returns. But if you’re installing something this year, that federal money isn’t coming.
The good news, and it’s real good news, is that the credit was never the reason these upgrades made sense. The energy savings were. Let’s walk through which upgrades actually pay for themselves, the math behind each one, and where rebate money still exists in 2026 if you know where to look.
First, What Actually Happened to the Tax Credit
For a few years the Energy Efficient Home Improvement Credit (the IRS calls it Section 25C) gave you 30% back on a pile of home upgrades. The caps were the part everyone memorized:
- Up to $600 per year for things like ENERGY STAR windows, exterior doors, and a central AC or efficient furnace
- Up to $2,000 per year for heat pumps, heat pump water heaters, and biomass stoves
- A separate $1,200 annual ceiling on the envelope stuff (insulation, windows, doors, audits)
That credit, plus the 30% Residential Clean Energy Credit for rooftop solar and geothermal, both ended for anything installed after December 31, 2025. If your project was done and running by that date, you can still claim it on the 2025 return you file this spring. Anything placed in service in 2026? No federal credit. (One narrow exception: geothermal heat pumps still qualify for the 30% Residential Clean Energy Credit through 2032, because they fall under a different section of the law that wasn’t fully repealed. Tax rules shift, so confirm your specific equipment with a CPA before you count on it.)
We’re not going to pretend that’s not a loss. Losing $2,000 off a heat pump stings. But the payback math below assumes you get zero federal help, and most of these still win.
Heat Pumps: The Big One
A heat pump heats and cools with the same box, and it does it by moving heat instead of burning fuel to make it. That’s why it’s roughly two to three times more efficient than a gas furnace or old electric baseboards.
Installed cost in 2026 for a ducted air-source system runs about $7,500 to $15,000, depending on size, your home, and whether your ductwork and electrical panel need work. A straight furnace-and-AC replacement using good existing ducts lands toward the lower end.
Here’s where it earns its keep. The National Renewable Energy Lab puts median household savings around $300 to $650 a year, and homes ditching propane, oil, or old electric resistance heat can save $1,000 or more annually. The Department of Energy has cited a Michigan household saving roughly $1,500 a year switching off propane.
| Heating you’re replacing | Rough annual savings with a heat pump |
|---|---|
| Newer gas furnace | $0 to $300 (often a wash) |
| Old/inefficient gas furnace | $300 to $650 |
| Electric baseboard or old AC | $600 to $1,200 |
| Propane or heating oil | $1,000 to $1,500+ |
The catch: if you have a cheap, efficient gas furnace and cheap natural gas, a heat pump might barely beat it on operating cost, and the payback could stretch past a decade. Heat pumps shine when you’re replacing something expensive to run (propane, oil, electric resistance) or when your old system is dying anyway and you’d be buying new equipment regardless. In that case you’re comparing the heat pump’s price to a new furnace-plus-AC, not to zero, and the gap shrinks fast.
This is the upgrade we leaned on hardest after our own cooling-cost reckoning, which we wrote up in our piece on saving money on air conditioning. A heat pump is the air conditioner, so you’re solving summer and winter in one purchase.
Insulation and Air Sealing: Boring, Cheap, Best ROI
Nobody brags about attic insulation at a dinner party. But dollar for dollar, it’s usually the best return in this whole list.
Blown-in attic insulation runs about $1,500 to $3,500 for an average home, and air sealing (caulking gaps, sealing the attic hatch, foaming around penetrations) is a few hundred more. The EPA estimates sealing and insulating saves the average homeowner around 15% on heating and cooling. In real dollars, going from a thin R-19 attic to a proper R-49 saves roughly $200 to $400 a year on a 1,500-square-foot house.
Run the numbers and the payback is commonly 2 to 5 years, after which it just keeps paying for decades. It also makes every other upgrade work better, because a heat pump in a leaky house is heating the outdoors.
The catch: get a blower-door test or at least an honest contractor before you pile insulation on top of unsealed gaps. Insulation slows heat that already escaped; air sealing stops the leak in the first place. Do the sealing first.
Windows: The One We’d Slow Down On
Windows are where the math gets uncomfortable. Replacing single-pane windows with ENERGY STAR double-pane Low-E units saves about $100 to $580 a year, and the bigger end of that only happens in harsh climates replacing genuinely terrible windows.
The problem is the price. Whole-house window replacement commonly runs $8,000 to $25,000-plus. Divide a $15,000 job by $300 a year in savings and you’re looking at a payback measured in decades, not years.
So we’d frame windows as a comfort-and-resale upgrade that happens to save some energy, not an energy investment that pays for itself. If your windows are rotting or fogged, replace them. If they’re just old but solid, storm windows, weatherstripping, and cellular shades capture much of the benefit for a fraction of the cost.
Smart Thermostats: Cheapest Win on the Board
A smart thermostat is the rare upgrade that pays back in a single season. Units like the Google Nest ($129 to $249), Ecobee ($189 to $249), or Honeywell Home T9 ($199) cost a couple hundred bucks and install in half an hour.
The Department of Energy pegs the savings at 10% to 15% on heating and cooling, which for most homes is $50 to $150 a year. Payback is often under a year, and it’s the one item here where utility money is genuinely easy to grab. Plenty of utilities, from SMUD in Sacramento to programs all over the country, hand out $50 to $100 instant rebates on qualifying smart thermostats. Check your utility’s rebate page before you buy, because buying through their store sometimes drops the price at checkout. We covered this and a stack of other small moves in our guide to lowering your electric bill.
Induction Cooktops: A Smaller, Slower Payback
Induction cooking is faster and more efficient than gas or old electric coil, but let’s be honest about the money. Swapping a working stove for induction won’t pay for itself on energy savings alone; the efficiency gap on a single appliance is small, maybe $20 to $50 a year.
Where it makes sense: you’re replacing a dead range anyway, you want gas out of the kitchen for air-quality reasons, or you can stack a rebate. That last part matters, because induction is one appliance where state rebate money is still flowing in 2026.
Where the Money Actually Is in 2026: State and Utility Rebates
The federal tax credit is gone, but the Inflation Reduction Act rebate programs are separate, state-run, and very much alive in a chunk of the country. These are the HEAR (Home Electrification and Appliance Rebates) and HOMES programs, and they pay you cash or a point-of-sale discount, not a tax credit.
For income-qualifying households (at or below 150% of your area’s median income), HEAR can cover:
- Up to $8,000 toward a heat pump for heating and cooling
- Up to $1,750 for a heat pump water heater
- Up to $840 toward an induction or electric range, plus money for wiring and panel upgrades
- A household cap of $14,000 for lower-income homes (up to $7,000 for moderate-income)
As of 2026 these programs are live in a dozen-plus states including New York, Colorado, Maine, Michigan, New Mexico, North Carolina, Rhode Island, Wisconsin, Georgia, Arizona, and others, with more launching mid-year. The big catch is funding runs out. California’s heat pump rebates hit “fully reserved” in February 2026 and shifted new applicants to a waitlist. If your state’s portal is open and you qualify, move quickly.
On top of that, utility rebates stack with state programs and don’t care about your income. Mass Save in Massachusetts offers up to $10,000 toward whole-home heat pump conversions; utilities in Colorado, Washington, New York, and elsewhere run their own four-figure incentives. The fastest way to see everything in your zip code is the ENERGY STAR Rebate Finder and your state energy office’s site.
A quick note on stacking, since it’s where the real savings hide: a state HEAR rebate and a utility rebate can usually be combined on the same project, which is how an $8,000 heat pump can net out under $3,000 for a qualifying household. What you generally can’t do is claim two rebates for the exact same dollar of cost. Get the rules in writing from your installer before the work starts.
How to Decide What to Do First
If you’re staring at a limited budget and want the moves that pay back fastest, the order is pretty clear. Smart thermostat first because it’s cheap and quick. Air sealing and attic insulation next because the ROI is genuinely excellent. Heat pump when your current system dies or if you’re heating with propane, oil, or electric resistance. Windows and induction only when you’re replacing them for other reasons anyway and a rebate sweetens the deal.
The federal credit leaving the table changed the headline, not the underlying math. A sealed attic that saves $300 a year was a good deal when the credit existed and it’s the same good deal now. Check whether your state’s rebate portal is open, because that’s where the four-figure money still lives, and confirm any program’s current terms before you sign anything since these rules have moved twice in two years already.
Sources: IRS — Home Energy Tax Credits; IRS — Energy Efficient Home Improvement Credit; DOE — Home Upgrades and Home Energy Rebates; Rewiring America — HEAR rebates; ENERGY STAR — Seal and Insulate. Programs, prices, and eligibility change frequently; verify current terms with the official program before you apply.