If you are planning a new heat pump, air conditioner or furnace in California, the money picture changed at the start of 2026. The federal tax credit for efficient heat pumps, central air conditioners and furnaces ended for equipment installed after December 31, 2025. What remains are rebates and incentives from utilities, regional networks such as BayREN, and state-funded programs. They are real, but they open and close, they have rules, and the rules decide whether you get paid.
What happened to the federal tax credit
The credit, expanded by the Inflation Reduction Act, let homeowners take part of the cost of qualifying heating and cooling equipment off their federal income tax. It was a credit, not a deduction, so it reduced the tax itself. A federal law passed in 2025 ended it early: equipment installed (placed in service) after December 31, 2025 no longer qualifies, however efficient it is.
Two practical points follow:
- If your system went in during 2025 or earlier, that year’s return was the place to claim it. If you have not, ask a tax professional rather than a salesperson.
- If anyone still quotes a federal tax credit on new HVAC equipment, ask them to show the current rule in writing.
The kinds of programs that still exist
Utility programs. PG&E has offered rebates on heat pumps, smart thermostats and home energy assessments, and its offers change during the year. Some utility incentives are paid upstream, to the distributor or contractor, and show up as a lower price on the quote instead of a check later. Ask whether a quote already includes one, so it is not counted twice.
Your electricity provider. In San Mateo County, most homes buy their electricity through a community choice energy provider, with PG&E delivering it and sending the bill. Providers like this can run their own electrification incentives, so check both.
BayREN. The regional energy network San Mateo County belongs to has run programs for single-family and multifamily homes, including incentives for whole-home upgrades where insulation, air sealing, ducts and equipment are improved together. Programs of this kind often begin with an assessment of the house.
State programs. California has funded incentives for installing heat pumps in existing homes, paid through participating contractors, and programs with added help for income-qualified households. Funding usually comes in rounds; when a round is used up, a program can pause or close with little notice.
Manufacturer promotions. Seasonal offers on particular equipment come and go. Treat them like any discount: read the dates and the conditions.
Before you count on a rebate
| Check | What to look for |
|---|---|
| Eligibility | Your utility and electricity provider, home type, owner or renter, sometimes household income, and what you are replacing: some programs pay only for switching from gas heat to a heat pump |
| Equipment | The exact indoor and outdoor combination on the program’s qualifying list, with its efficiency rating certificate |
| Contractor | Whether the program pays only through enrolled contractors, and whether yours is enrolled now, not last year |
| Paperwork | An itemized invoice with model and serial numbers, the rating certificate, the permit and its final sign-off, photos of the old equipment if asked, your account number |
| Timing | Whether you must reserve funds before installation, how long you have to apply afterwards, and whether money is left |
| Stacking | Whether you can combine it with other programs, and whether one reduces another |
An order of steps that keeps you eligible
- Look up current programs for your address before you collect quotes, and save each terms page with its date.
- Consider an assessment first if you are weighing several upgrades. An energy audit shows whether ducts, attic insulation or air leaks should come before new equipment.
- Get written estimates that name the exact equipment and the scope. Our estimates for new and replacement systems are free and come in writing; bring the program’s requirements so the named equipment can be checked against its list.
- Reserve or get pre-approval before work starts, if the program asks for it.
- Make sure the permit is pulled. Some programs ask for proof of it, and in California replacing the main heating or cooling equipment can also require a duct leakage test.
- Install, pass the final inspection and submit within the program’s deadline, with every document.
- Keep copies of everything until the payment arrives, and with your house records after that.
Where rebates fit in the decision
A rebate should not choose your equipment. A heat pump sized for the house, on ducts that can deliver its airflow, costs less to live with than a mismatched system that happened to qualify. In older Menlo Park and Atherton homes the bigger questions are often the ducts, which may have been sized decades ago for a furnace alone, and whether the electrical panel has room for a heat pump. Ask whether a program counts duct sealing or electrical work, not just the equipment.
If the numbers only work with a rebate, plan for the case where it does not come through: a program can close between your quote and your application. Our financing page covers what to compare in any payment offer. If you switch from gas heat to a heat pump, ask PG&E whether a different rate plan suits an electrically heated home. For rooms the ducts never reached, a ductless mini-split is often simpler than new duct runs, and ductless heat pumps qualify under some programs.
The rebates page has the short version of this guide. If you are also replacing the thermostat, check compatibility first with our smart thermostat comparison. The one firm rule: read the program’s terms on the day you sign, not the day you first heard about it.