Utility rebates replace federal tax credits for heat pump incentives in 2026

The federal 25C tax credit for heat pumps ended on December 31, 2025, shifting incentive programs to utility rebates starting in 2026, according to achrnews.com.

Sacramento Municipal Utility District (SMUD) increased its gas-to-electric heat pump rebates on February 1, 2026, offering $3,000 for variable-stage and $2,000 for two-stage heat pumps, plus a $2,000 panel bonus, the report stated.

Unlike federal tax credits claimed on tax returns, these utility rebates are processed through contractors who submit applications and collect homeowner signatures, making the rebate process an operating function of HVAC shops.

SMUD's residential rebate program is administered by Efficiency First California, a contractor trade group, which handles contractor enrollment and support, while homeowners are directed to the utility's energy advisors.

Contractors must meet specific licensing and testing requirements, including third-party duct leak testing, to qualify for rebates, and visibility in the public directory depends on completing a minimum number of jobs per quarter, with separate counts for different measures.

The rebate process does not require pre-installation approval in SMUD's program but does require reserving the rebate; other programs may have different requirements, highlighting the importance for contractors to understand each utility's rules.