If you’ve been putting off a heating or cooling upgrade and assumed you could lean on the old federal tax credit to soften the cost, there’s an important change you need to know about. The incentive landscape shifted significantly heading into 2026 one major program ended, and the savings that remain are now pointed in a specific direction.

The short version: there’s still real money on the table for Denver homeowners, but it looks very different than it did a year ago. Here’s an honest, up-to-date breakdown of what’s available in 2026, what’s gone, and how to actually claim it.

A note on accuracy: Rebate amounts, deadlines, and program funding change often, sometimes mid-year. The figures below reflect the 2026 programs as of this writing. Always confirm current numbers directly with Xcel Energy, the Colorado Energy Office, and your installer before making a decision based on a specific dollar amount.

First, the Big Change: The Federal Tax Credit Has Ended

For several years, the federal Energy Efficient Home Improvement Credit (Section 25C) let homeowners claim up to 30% of the cost of a qualifying HVAC upgrade up to $2,000 for a heat pump and $600 for a high-efficiency furnace or air conditioner, with a $3,200 annual cap across all improvements.

That credit expired on December 31, 2025, and it is not expected to return.

There is one exception worth knowing: if you installed a qualifying system in 2025, you can still claim the credit on your 2025 federal tax return (filed in early 2026) using IRS Form 5695. But for any new system installed in 2026 or later, the federal credit no longer applies.

This is the part most online articles still get wrong, because plenty of them haven’t been updated. If you read a “2025 tax credit” guide promising federal savings on a 2026 install, it’s out of date.

The Good News: Colorado and Xcel Incentives Are Still Strong

Here’s what most homeowners don’t realize: for many Denver homes, the state and utility programs that remain are now larger than the federal credit ever was. They just come with one important catch, which we’ll get to.

Colorado State Heat Pump Tax Credit

Colorado offers a state tax credit for heat pump installations:

• $1,000 for a qualifying heat pump HVAC system
• $250 for a heat pump water heater

There’s no income requirement; it’s available to all Colorado residents. The credit is applied as an upfront discount on your invoice, so you pay less at the time of installation rather than waiting for a refund. One condition: the contractor must pass along at least a 33% invoice discount for the credit to apply.

Worth noting: this credit has been stepping down each year (it was higher in prior years), so the amount you get in 2026 is smaller than it would have been earlier. If you’re planning an upgrade, waiting doesn’t make it cheaper.

Xcel Energy Rebates The Largest Piece

If you’re an Xcel Energy customer in the Denver metro which covers most of the area  this is usually the biggest source of savings. Xcel offers rebates through its Clean Heat Plan:

• Up to $2,250 per heating ton for qualifying cold-climate heat pumps (the kind built to run efficiently in sub-zero temperatures ideal for Denver winters)
• Lower per-ton rebates for standard, non-cold-climate units
• A flat rebate for qualifying heat pump water heaters
  

On a typical 3-ton system, the Xcel cold-climate rebate alone can reach around $6,750. 

One requirement to flag: these rebates generally require an active Xcel gas (or gas and electric) account at the property.

What It Looks Like When You Stack Them

For a Denver homeowner with Xcel gas service, the Xcel rebate and the Colorado state credit stack together with no income check to roughly $7,750 on a typical 3-ton cold-climate heat pump, and more on larger systems. That’s a meaningful dent in the cost of a project that electrifies your heating and cooling in one move.

Income-Qualified and Upcoming Programs

A few more programs are worth knowing about:

• HEAR (Home Electrification and Appliance Rebates): Federally funded, income-qualified rebates of up to $8,000 for heat pumps for households under a certain income threshold. Funding is limited and being claimed quickly Front Range allocations have been running low so this one is time-sensitive and not guaranteed.
• Power Ahead Colorado: A regional Denver-metro program backed by significant funding, expected to add another layer of rebates when it launches in 2026. Details were still being finalized as of this writing.
• Denver’s CARe program: This city electrification rebate ended in 2025 and is no longer available, despite still showing up in a lot of older search results.

The Catch You Need to Hear

Here’s the honest part most rebate articles bury: In 2026, the active rebate and credit programs are almost entirely limited to heat pumps, heat pump water heaters, and electrification upgrades.

There are essentially no rebates for a standard gas furnace or a conventional air conditioner anymore. If you’re replacing a furnace with another furnace, the incentive money largely won’t apply.

This doesn’t automatically mean a heat pump is right for your home that depends on your house, your ductwork, and your heating needs, which we cover in our guide on choosing the best HVAC system for a Denver home. But it does mean the financial math has shifted, and it’s worth understanding before you assume a like-for-like replacement is the cheapest path.

How to Actually Claim These Savings

A few practical tips so the money doesn’t slip through your fingers:

• Confirm eligibility before you buy, not after. Equipment has to meet specific efficiency standards to qualify.
• Ask whether your installer is a registered rebate contractor. For the Xcel and state programs, a registered contractor can typically apply the incentives as upfront discounts and handle the paperwork which is far easier than filing it yourself. It’s a fair question to ask any company you’re considering.
• Keep your documentation invoices, model numbers, and efficiency ratings in case you need them at tax time.
• Act within the program year. Funding pools and credit amounts change annually, and some are first-come, first-served.
  

If you’re weighing a heat pump and want to understand which incentives your specific home qualifies for, our heat pump services page is a good starting point, and we keep general program information on our rebates page. If cost is the main hurdle, we also offer financing options that can be combined with available rebates.

Frequently Asked Questions