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Heat Pump vs Gas Furnace: The 2026 Math After the $2,000 Credit Expired

By Brian WilliamsPublished April 10, 202611 min read

The federal 25C heat pump credit expired 12/31/2025. Here's how heat pumps compare to gas furnaces on operating cost, efficiency, and cold-climate performance without it.

Heat pump system installed outside a contemporary building

Heat pumps had a big run from 2023 through 2025, pushed along by a $2,000 federal tax credit and real improvements in cold-climate performance. That credit expired December 31, 2025 under the One Big Beautiful Bill Act (P.L. 119-21). Anything installed in 2026 or later does not qualify. Gas furnaces still heat most American homes. So what makes sense this year?

Quick Answer: A heat pump still comes out ahead for most homes on operating cost — one box handles both heating and cooling, and runs 30-50% cheaper per year than a gas furnace + AC. But upfront cost is closer now with the federal credit gone. A gas furnace still makes sense if you are in extreme cold country (northern Minnesota, Montana), natural gas is cheap in your area, or you only need to replace the furnace and the AC is fine. If you installed a heat pump in 2025, claim the credit on your 2025 return on IRS Form 5695 — this post is about 2026.

Outdoor air conditioning heat pump unit on residential building

Cost Comparison (2026)

FactorHeat PumpGas Furnace + AC Equipment$3,500-$8,000$2,000-$5,000 (furnace) + $2,500-$6,000 (AC) Installation$1,500-$3,000$1,500-$3,000 (each unit) Total installed$5,000-$11,000$7,000-$14,000 Federal tax credit (2026)$0 (25C expired 12/31/2025)$0 State incentives / utility rebates$300–$2,500 (varies)$0–$500

A heat pump still comes in under a furnace + AC combo because one unit does both jobs. The gap is smaller now that the $2,000 federal credit is gone. For full pricing data, see the HVAC replacement cost guide or HVAC costs in your state. The HVAC calculator will price your specific house.

Technician adjusting boiler system instrumentation

Federal 25C Tax Credit — Expired December 31, 2025

The Section 25C Energy Efficient Home Improvement Credit used to pay up to $2,000 for qualifying air-source heat pumps. OBBB ended it with a cliff date — no phase-down, no partial year.

If you installed a qualifying heat pump in 2025 or earlier: you can still claim the credit on your 2025 return with IRS Form 5695. Keep the manufacturer certification statement with your records.

If you are installing in 2026: no federal credit. State incentives and utility rebates are what is left:

Massachusetts Mass Save: whole-home heat pump rebates often $10,000+ (more if you are income-qualified)

New York NYSERDA Clean Heat: per-ton rebates that stack with utility programs

California TECH Clean California: rebates plus an accelerated state tax credit for all-electric retrofits

Maine Efficiency Maine: $1,200–$1,600 per unit for whole-home heat pumps

Dozens of utilities run efficiency rebates, usually $300–$2,500

Filter DSIRE by "heat pump" and your state to see what actually applies where you live. For more on what OBBB changed across the clean-energy space, see the solar incentives guide.

Gas furnaces do not qualify for any federal credit in 2026 either, to be clear.

Bright renovated home interior with modern lighting

Efficiency: How They Work

Heat pumps do not make heat. They move it. Even cold air has thermal energy in it, and a heat pump pulls that energy inside. That is why heat pumps run at 200-300% efficiency — every 1 unit of electricity they use delivers 2-3 units of heat. The measurements you will see are COP (Coefficient of Performance) or HSPF2 (Heating Seasonal Performance Factor).

Gas furnaces burn fuel to make heat. A modern high-efficiency furnace is 95-98% efficient — measured as AFUE, Annual Fuel Utilization Efficiency. Nearly all of the gas becomes heat. The rest goes up the flue.

The point: a heat pump at 300% delivers three times as much heat per unit of energy as a furnace at 95% delivers per unit of gas. Electricity costs more per unit than gas, but the efficiency gap is usually big enough that the heat pump wins on operating cost anyway.

Annual Operating Costs

ClimateHeat Pump Annual CostGas Furnace Annual CostSavings Mild (Atlanta, Dallas)$600-$900$900-$1,40030-40% Mixed (Kansas City, Nashville)$800-$1,200$1,100-$1,60025-35% Cold (Chicago, Denver)$1,000-$1,500$1,200-$1,80015-25% Very cold (Minneapolis, Fargo)$1,200-$1,800$1,300-$1,9005-15%

Based on 2026 national averages: electricity at $0.16/kWh, natural gas at $1.30/therm. Your actual rates will vary — check your last utility bill.

Cold Climate Performance

This is where the story has really changed. Modern cold-climate heat pumps (sometimes called "hyper-heat" systems) from Mitsubishi, Daikin, and Bosch work efficiently down to -15°F to -22°F.

The old line that "heat pumps don't work in cold weather" is out of date. They do. But there are a few honest caveats:

1. Efficiency drops as the temperature drops. At 0°F, a heat pump is about 150% efficient — still beats a 95% gas furnace. At -15°F it drops to around 100% — the same as a plain electric heater.

2. You may want a backup in very cold climates. A dual-fuel system (heat pump + gas furnace backup) is often the right answer. The heat pump handles 80-90% of heating hours. The furnace kicks on only when it gets truly cold.

3. Sizing matters more in cold climates. An undersized heat pump struggles when it is below zero. Insist on a Manual J load calculation. Do not let an installer just match your old furnace's tonnage — that is how you end up with an oversized or undersized system.

Heating AND Cooling

A heat pump does both jobs. In summer it works exactly like an air conditioner — an AC is basically a heat pump that only runs one direction. What that means in practice:

One system replaces two, no separate furnace and AC

One maintenance contract, not two

Fewer moving parts to fail down the road

A gas furnace only heats. You still need a separate AC on top of it, which adds $2,500-$6,000 to the job.

Lifespan

Heat pumps last 15-20 years. They run year-round, so they rack up more operating hours than a furnace that only runs half the year.

Gas furnaces last 15-25 years since they only work during heating season.

AC units (needed alongside a furnace) last 15-20 years.

Factor in that a heat pump handles both roles, and the total replacement frequency ends up about the same either way.

Safety

Heat pumps run on electricity. No combustion, no carbon monoxide, no open flame, no gas line.

Gas furnaces burn gas, which produces carbon monoxide as a byproduct. Proper venting and a working CO detector are not optional. Rare but serious issues: gas leaks, cracked heat exchangers, bad combustion.

On pure safety, heat pumps are easier to live with.

What I Would Pick

For most homeowners replacing HVAC in 2026, a heat pump is still the better default:

1. 30-50% lower operating cost year to year

2. Handles heating and cooling in one install

3. No combustion, no CO risk

4. Modern cold-climate models work down to -15°F

5. State and utility rebates still exist even without the federal credit

Stick with a gas furnace if:

Temperatures where you live regularly sit below -15°F for long stretches

Natural gas is unusually cheap where you live (under $0.80/therm)

Your AC is in good shape and you only need to replace the furnace

A dual-fuel setup — heat pump with gas backup — is probably the honest answer

Frequently Asked Questions

Will a heat pump raise my electric bill?

Yes, your electric usage goes up because you are heating with electricity instead of gas. But your gas bill drops to near zero. Total energy costs usually come in 25-40% lower overall.

Can I replace just the furnace with a heat pump?

You can, but the heat pump replaces both sides of the system. If your AC is also old, doing both at the same time is more cost-effective than replacing just the furnace and then the AC a few years later.

Do heat pumps work with my existing ductwork?

Yes. Ducted heat pumps use the same ducts as a furnace and AC. If the duct system is in rough shape, now is the time to address it.

What about ductless mini-splits?

Mini-splits are heat pumps without ducts. They are ideal for older homes without ductwork, for additions, or for zone-specific heating and cooling. They are typically more efficient than ducted systems but cost more to cover a whole house.

Is there still a federal tax credit for heat pumps in 2026?

No. Section 25C (up to $2,000 for qualifying air-source heat pumps) expired December 31, 2025 under OBBB. Anything placed in service in 2026 or later does not qualify. If you installed one in 2025 and have not filed yet, claim it on your 2025 return with IRS Form 5695. State and utility rebates still exist — check DSIRE for your state.

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*Run the numbers with the HVAC calculator. Check heating and cooling costs in your state for local pricing.*