Heat Pumps for Your Home: Cost, Savings and How to Choose

Heat pump cost is the first question most homeowners ask, and the honest answer has two parts: what you pay to install one, and what you pay to run it every month. This guide explains both, shows where the biggest savings come from, and walks you through sizing, efficiency ratings and the incentives that are still available in 2026.

How does a heat pump save money?

A heat pump saves money because it moves heat instead of making it. In winter it pulls heat from outdoor air and moves it inside. In summer it works like an air conditioner. ENERGY STAR says an air-source heat pump can deliver up to three times more heat energy than the electricity it uses.

A furnace or baseboard heater creates heat by burning fuel or running current through a resistance coil. Even a perfect electric baseboard turns one unit of electricity into one unit of heat. A heat pump uses that same unit of electricity to move two or three units of heat, which is why it costs less to run.

The Department of Energy (DOE) says today’s heat pumps can reduce electricity use for heating by approximately 65% compared with electric resistance heating such as electric furnaces and baseboard heaters (DOE, Home Upgrades). ENERGY STAR puts it another way: a certified heat pump can heat a home for roughly one-third the cost of traditional electric heat and about half the cost of oil heat, depending on where you live.

How much can a heat pump save compared with my current system?

Savings depend mostly on the fuel you use now. Homes heated with electric resistance, oil or propane usually save the most. Homes with natural gas may save less or break even, depending on local prices. A DOE analysis in February 2024 found a matched heat pump would lower bills for over 90% of households it assessed.

That DOE Office of Policy analysis gave two examples. In Arizona, homes where a variable-speed ENERGY STAR heat pump was the best option saved about $300 a year. In Michigan, homes heating with propane or electricity saved about $1,500 a year on average with a cold-climate model (DOE, February 2024).

A quick way to estimate your own savings

You can do a rough check with your utility bills:

1. Find how much you spent on heating fuel last winter. For electric heat, estimate the winter kWh above your summer baseline.
2. If you heat with electric resistance, multiply that winter heating kWh by about 0.35 to estimate heat pump use (based on DOE’s roughly 65% reduction).
3. Multiply the result by your electricity rate. The U.S. average residential price was 17.30 cents per kWh in 2025 (EIA, annual average for 2025), but use the rate on your own bill.
4. Compare the two totals, then add the cooling savings if you also replace an old air conditioner.

For example, a home using 10,000 kWh a year on baseboard heat at 17.30 cents pays about $1,730. Cutting that use by about 65% would save roughly $1,125 a year. This is simple arithmetic, not a quote, so ask your contractor for a load-based estimate.

Source: Worked example, Home Energy Guide Hub heating cost comparison calculator; default prices from EIA (electricity 18¢/kWh, gas $1.35/therm, propane $2.64/gal, oil $6.14/gal) (as of October 2026).

View data as table

Heating option	Cost per million BTU delivered
Natural gas furnace (95%)	$14.21
Heat pump (COP 2.5)	$21.10
Propane furnace (95%)	$30.39
Oil boiler/furnace (85%)	$52.58
Electric resistance	$52.75

What does a heat pump cost to install?

Installed prices vary widely by home size, climate, ductwork condition, electrical upgrades and local labor rates. No single national price is reliable, so the best approach is to collect at least three written quotes that list the model, its efficiency ratings, the sizing method used and any electrical or duct work included.

Several things push the price up or down:

• Ducted vs ductless. Replacing a central AC that already has good ducts is usually simpler than adding mini-splits to several rooms.
• Duct repairs. Leaky or undersized ducts may need sealing or modification.
• Electrical work. Some homes need a new circuit or a panel upgrade.
• Cold-climate equipment. Models built to hold capacity at very low temperatures usually cost more. Our cold-climate heat pump guide explains when they are worth it.
• Backup heat. Electric resistance strips or a dual-fuel furnace add cost.

Timing matters too. ENERGY STAR notes that heat pumps and central air conditioners are comparable in price before incentives. If your AC or furnace is near the end of its life, the extra cost of choosing a heat pump instead of a like-for-like replacement is often small.

How do I read SEER2 and HSPF2 ratings?

SEER2 measures cooling efficiency and HSPF2 measures heating efficiency over a season. Higher is better for both. Since January 1, 2023, all U.S. ratings use an updated federal test, which is why the numbers end in “2.” Federal minimums for split-system heat pumps are 14.3 SEER2 and 7.5 HSPF2.

SEER2 stands for Seasonal Energy Efficiency Ratio 2: the cooling delivered over a season divided by the electricity used. HSPF2, or Heating Seasonal Performance Factor 2, is the heating version. EER2 (Energy Efficiency Ratio 2) measures cooling at a single hot-weather test point. Compare these only with other “2” ratings, not with older SEER or HSPF numbers.

ENERGY STAR’s current heat pump specification (Version 6.2, revised February 2026) sets these minimums:

Sources: ENERGY STAR Key Product Criteria and the DOE Federal Energy Management Program, checked October 2026.

Does a higher rating pay off?

It can, especially where you heat or cool a lot. DOE’s Federal Energy Management Program (FEMP) compared three models for hot-humid Southeast states, in 2023 dollars. A 14.3 SEER2 / 7.5 HSPF2 unit cost about $1,354 a year to run. An ENERGY STAR 15.2 / 7.8 unit cost about $1,283. The best available 24 / 11 model cost about $846 a year, saving up to $5,533 over 15 years compared with the basic unit.

Source: U.S. DOE Federal Energy Management Program, hot-humid Southeast example (as of October 2026).

View data as table

Heat pump (SEER2 / HSPF2)	Annual operating cost (2023 dollars)
Federal minimum 14.3 / 7.5	$1,354/yr
ENERGY STAR 15.2 / 7.8	$1,283/yr
Best available 24 / 11	$846/yr

Those figures use FEMP’s own assumptions, so your numbers will differ. The pattern is what matters: the jump from minimum to ENERGY STAR saves a little, while top-tier variable-speed units can save much more in climates with long heating or cooling seasons. Ask your installer to price two efficiency levels so you can compare.

How should a heat pump be sized?

A heat pump should be sized with a room-by-room load calculation, usually ACCA Manual J. That calculation uses your insulation, windows, air leaks and local design temperatures. Sizing by square footage or by copying your old furnace often leads to an oversized system that costs more and performs worse.

An oversized heat pump turns on and off often. That short-cycling wastes energy, wears parts and removes less humidity in summer. An undersized one leans too hard on backup heat in winter. Variable-speed (inverter) models handle a wider range of loads, but they still need correct sizing.

Here is what a good sizing process looks like:

1. The contractor measures rooms, windows and insulation, or uses a recent energy audit.
2. They run a Manual J load calculation and give you a copy.
3. They check whether your ducts can carry the airflow the new unit needs (ACCA Manual D covers duct design).
4. They choose equipment whose capacity matches the load at your local winter design temperature, not just at 47°F.

Fixing the house first can shrink the system you need. ENERGY STAR notes that better insulation can let you choose a smaller, less expensive heat pump. Our guide to attic insulation levels by climate zone shows where to start, and sealing air leaks before you size anything helps even more.

Should I get a ducted or ductless heat pump?

Choose ducted if you already have ductwork in good shape, because the heat pump can connect to it much like a central air conditioner. Choose ductless mini-splits if your home has no ducts, such as homes with baseboards or boilers, or if you want to heat and cool an addition or a few rooms.

Some homes use both: a central system for the main floor and a ductless head for a finished attic or bonus room. Ask for a duct leakage check before you decide, since sealing ducts can make a ducted system much more efficient.

What about backup heat and dual-fuel systems?

Most heat pumps include backup heat for very cold days or defrost periods. It is usually electric resistance strips inside the air handler. A dual-fuel system instead keeps a gas or propane furnace as the backup. Backup heat is useful, but if it runs too often, your bills rise sharply.

Set your thermostat so backup heat only runs when it is really needed. Many smart thermostats let you set an outdoor temperature “lockout” so the strips stay off above a chosen temperature. Ask your installer to set this up and explain how deep nighttime setbacks affect backup heat.

What incentives are left for heat pumps in 2026?

There is no federal tax credit for heat pumps installed in 2026. The 25C credit ended for property placed in service after December 31, 2025. State-run Home Energy Rebates still operate in some states, and many utilities offer their own rebates, but rules tightened in mid-2026.

Federal tax credit: ended for 2026 installs

Under Public Law 119-21 (signed July 4, 2025), the IRS says the Energy Efficient Home Improvement Credit (25C) is not allowed for property placed in service after December 31, 2025. If your heat pump was placed in service during 2025, you can still claim it on your 2025 return using Form 5695. That credit was 30% of cost, up to $2,000 a year for heat pumps, and a manufacturer Qualified Manufacturer ID (QMID) is required for 2025 property. Our 2026 energy tax credit guide explains the dates, and a tax professional can confirm your case.

State Home Energy Rebates: limited and changing

The federal Home Energy Rebates are run by states. Under the original law, the High-Efficiency Electric Home Rebate (HEEHR) set a statutory maximum of $8,000 for a heat pump for low- and moderate-income households. Your state’s program sets the actual amounts.

DOE Program Notice 26-2, effective May 29, 2026, changed the rules. HEEHR rebates no longer fund switching from gas, oil, propane or other fossil fuels to electric. Heat pump rebates are limited to homes that already heat with electricity, or new construction. Households must also address insulation and air sealing before appliance rebates, unless the home already meets a state-set insulation level.

As of the NASEO tracker update of September 30, 2026, HEEHR programs have launched in states including Arizona, California, Georgia, Maine, Michigan, New Mexico, New York, North Carolina, Rhode Island and Wisconsin. Some have paused or run out of money, so check your state energy office page and our state-by-state rebate guide.

Utility rebates and financing

Many electric utilities still offer heat pump rebates, discounted equipment or on-bill financing. You can search programs by ZIP code on DSIRE, the incentives database run by the NC Clean Energy Technology Center. Always confirm terms directly with the program before you sign a contract.

Bottom line

A heat pump is one of the most effective ways to cut heating and cooling costs, especially if you now use electric resistance, oil or propane. Insist on a Manual J sizing calculation, compare at least two efficiency levels, and get three written quotes. The federal tax credit is gone for 2026 installs, so check your state energy office and your utility for the rebates that remain.