Colorado's Heat Pump Tax Credit, Explained

Colorado's heat pump incentive doesn't work like most tax credits. You don't claim it on your return. Your contractor does, and passes part of it to you as a discount on the invoice. Here's how it works in 2026 and how to make sure you get it.

The basics

The Colorado Energy Office (CEO) describes the program as an upfront discount on installation. The tax credit can be claimed only by registered contractors offering the discount. Anyone installing a qualified heat pump in Colorado through a registered contractor is eligible, including residents, businesses and other organizations.

The CEO says customers may receive a portion of the tax credit, at least 33%, as a discount at the time of installation. Registered contractors must pass along the discount for each tax credit they claim.

2026 amounts

From the CEO's 2026 tax credit and discount table:

The minimum discount is a floor, not a ceiling. Some contractors pass on more. Ask.

How to make sure you get it

1. Check the registry. The CEO publishes a list of registered contractors. If your installer isn't on it, they can't claim the credit, and you won't get the discount.
2. Ask before you sign. Ask whether the equipment qualifies and what discount you'll receive.
3. Look for it on the invoice. The discount should appear as a line item.
4. Keep paperwork. Save the invoice, equipment model numbers and any rebate forms.

Being on the list doesn't mean the CEO endorses the contractor. Vet installers the same way you would otherwise.

Stacking with utility rebates

The state discount is separate from utility rebates, and in many cases you can receive both. Check current terms with each program:

• Xcel Energy customers can look at Xcel's Colorado heat pump rebates, which have their own equipment and contractor requirements.
• Municipal utility customers in participating cities such as Longmont may use Efficiency Works, whose HVAC incentive sheet lists rebates for qualifying ducted air-source heat pumps.
• Boulder County residents, including those in Louisville, can look at EnergySmart, which has income-qualified rebates.

If you're not sure who your electric utility is, check your bill. Much of the Denver metro is served by Xcel Energy, but some Front Range cities, such as Longmont, run their own electric utilities, and the rebate programs differ.

Rebate programs often require pre-approval, a participating contractor, or specific efficiency ratings. Read the requirements before you sign a contract, not after installation.

The federal credit is gone

Many older articles mention a 30% federal tax credit for heat pumps. The IRS says the Energy Efficient Home Improvement Credit (25C) applies to improvements made through December 31, 2025. Heat pumps installed in 2026 don't qualify for it. If a contractor's sales materials still advertise the federal credit, ask them to update their numbers.

What it means for your budget

A ducted air-source heat pump typically costs $10,000 to $25,000 or more installed, according to HomeGuide's national figures. The state discount reduces that by at least $333. Utility rebates can reduce it further. Incentives help, but the bigger lever is choosing the right system size and design. See heat pump cost in Denver and our HVAC and heat pumps guide.

Heat pump water heaters

The credit also covers heat pump water heaters, with a $250 contractor credit and an $83 minimum discount in 2026. If you're replacing a tank water heater, check whether your installer is on the registered list before you choose equipment, and confirm that the unit qualifies.

Questions to ask your installer

• Are you on the CEO's registered contractor list?
• Does this equipment qualify, and how much discount will I see?
• Which utility rebates have you included, and are they confirmed?
• Will you handle the rebate paperwork, or will I?
• What happens if a rebate is denied?