Post Author's Photographer By Paul Cutting August 4, 2025

With the federal tax credit for air-source heat pumps expiring at the end of 2025, it might be a good time to take a closer look at whether a heat pump makes sense for your home.

The Energy Efficient Home Improvement Credit allows homeowners to claim 30% of the installed cost of an air-source heat pump—up to $2,000—as a non-refundable credit on their federal taxes. Coupled with utility incentives in many areas, upgrading to a heat pump now might make sense.

You SHOULD consider installing a heat pump if:

  1. You’re currently heating with electric resistance heat.

Electric baseboard, electric wall heaters, and portable electric heaters are among the most expensive ways to heat a home. Air-source heat pumps are two- to two-and-a-half times more efficient than electric resistance systems because they move heat rather than generate it. For households currently relying on electric resistance heat, upgrading to a heat pump can lead to substantial utility bill savings—often hundreds of dollars per year—while providing the added benefit of summer cooling. In most cases, replacing electric resistance heating with heat pumps reduces electricity bills by more than half.

  1. You’re heating with propane.

Propane prices tend to be higher and more volatile than natural gas, which can make electric heat pumps—especially dual-fuel systems—an attractive alternative. With a dual-fuel heat pump, your HVAC system will heat with the electric heat pump when it’s cost advantageous, and switch to propane during cold weather when the heat pump’s cost effectiveness drops below that of propane.

This setup can offer meaningful savings and reduce your dependence on propane price fluctuations. However, the cost savings won’t be as dramatic as those seen by households switching from electric resistance heat, and in some cases may be modest, break-even or even more expensive depending on local rates and propane prices. Propane users are usually rural and most of Iowa’s rural electric cooperatives offer low electricity rates, so switching from propane or opting for a dual-fuel system might make financial sense.

  1. You’re concerned with fluctuating natural gas and propane prices.

Fuel markets are volatile, and both propane and natural gas have seen price swings in recent years due to global events and supply constraints. For example, natural gas prices doubled at the start of Russia’s war with Ukraine. Electricity prices, on the other hand, tend to be more stable, especially in states like Iowa with regulated utility rates. A heat pump allows you to hedge against future spikes in gas or propane prices, especially when installed in a dual-fuel configuration.

  1. You’re looking to lower your carbon impact.

Residential home heating makes up a huge share of global carbon emissions, and heat pumps are an effective tool homeowners can use to reduce their carbon footprint. By replacing fossil-fuel-based heating systems with high-efficiency electric models, especially when paired with clean electricity sources and a clean grid power mix, homeowners can significantly lower greenhouse gas emissions associated with home heating. In fact, studies show that switching from natural gas or propane to a heat pump can reduce home heating emissions by 40–70%, depending on the grid power mix.

  1. You’re building a new home.

New homes are tight, better insulated, and use much less energy on a per-square-foot basis than older housing stock. That makes them ideal candidates for heat pumps. With no need to run gas lines or install combustion appliances, building all-electric is usually significantly cheaper, both initially and over the long run.

  1. You’re a customer of a utility with low electricity rates.

In parts of Iowa and other Midwest states, customers of certain investor-owned utilities, municipal utilities, and rural electric cooperatives enjoy relatively low electricity rates. For these households, heat pumps are not only efficient but also economical. The cost of heating with electricity in these regions can be competitive—or even cheaper—than with propane or natural gas. But in areas with high electric rates, the savings potential may be lower or even nonexistent.

It’s critically important for homeowners to understand the actual cost implications of heating with electricity compared to other fuels. Not all contractors will take the time to explain this, or even understand it themselves, so don’t hesitate to press them on it. Ask for a side-by-side comparison of estimated operating costs for different systems based on your local electric and gas rates. A contractor who truly understands heat pump economics should be able to explain when the numbers make sense—and when they don’t.

  1. You live in a small, well-insulated, and tight home or are adding onto your existing house.

Smaller, tighter homes heat and cool more easily, making them ideal for heat pumps. Likewise, when adding onto a home, it’s often expensive or infeasible to extend existing ductwork. In these situations, ductless mini splits can be an ideal solution.

You might NOT consider a heat pump if:

  1. You already heat with natural gas. 

Natural gas is the lowest-cost heating fuel available in most parts of the country. Even the most efficient heat pumps (including geothermal heat pumps) struggle to beat natural gas on a cost-per-BTU basis, especially during the coldest months when heat pump efficiency declines. For households already heating with gas, switching to a heat pump could lead to higher annual operating costs rather than savings.

While some homeowners consider dual-fuel systems that pair a heat pump with a gas furnace, these systems often can’t compete with gas, even in mild shoulder season situations. For example, for Decorah households served by Alliant Energy and with access to natural gas (using 2024-25 winter prices as a benchmark), running a heat pump when the outdoor temperature was 45° was still nearly twice as expensive than burning gas.

  1. Your existing system is relatively new and working well.

If your current furnace and air conditioner are still in good shape and have several years of life left, it probably doesn’t make sense to replace them early. Even with incentives, heat pumps are a major investment. Waiting until your existing equipment nears the end of its life could allow you to better align replacement with evolving utility rates and advancements in heat pump technology.

  1. If you don’t have adequate electrical service.

Older homes with 100-amp service or less may not have the capacity to support a large heat pump—especially if it includes electric resistance backup heat or if you’re planning to add other electric loads like EV charging or an electric range. Many customers can get around an expensive upgrade by opting for a dual-fuel configuration where energy intensive electric resistance heating isn’t required.

In conclusion

Heat pumps offer a compelling option for homeowners looking to reduce their environmental impact and sometimes reduce overall energy costs. But like any home upgrade, they aren’t one-size-fits-all. Whether a heat pump makes sense depends on several factors, including how you currently heat and cool your home, the cost of available fuels, the overall efficiency and tightness of your home, and your long-term plans and goals. With the federal tax credit available through the end of 2025, now might be an ideal time to explore whether a heat pump makes sense.

 

Want to learn more about heat pumps? View our 2024 webinar: High Efficiency Cooling (and heating!) with Heat Pumps (Youtube)

A man with short brown hair, a beard, and glasses is smiling. He is wearing a bright yellow T-shirt with a small logo on the chest and standing in front of a plain gray background.

Paul Cutting

Winneshiek Energy District Energy Planner Paul joins Winneshiek Energy District with a background in teaching and carpentry. For the last seven years Paul was a high school industrial tech teacher in Lanesboro, MN. There he taught carpentry, cabinetmaking, electricity, engineering design, graphic design, CAD, entrepreneurship, and more generally, enjoyed helping youngsters grow into capable and confident young adults. Prior to teaching, Paul spent several years as a carpenter disassembling and reconstructing 19th century Norwegian-built log buildings for clients. He also worked several seasons for HistoriCorps, a non-profit that pairs volunteers with hands-on historic preservation projects throughout the mountain west. In his free time Paul enjoys making furniture, trail running with his dog Bobo, scheming backpacking trips out west, camping in his homemade teardrop camper, and rehabbing his 170 year old brick house.

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