8 min read · Last updated October 5, 2026
- A new gas furnace runs roughly $4,500 to $8,000 installed. A whole-home heat pump runs $12,000 to $20,000 before incentives. The federal 25C tax credit that covered 30% of a qualifying heat pump’s cost, up to $2,000, ended for any system installed after December 31, 2025, under the One Big Beautiful Bill Act. A 2026 buyer gets no federal credit on either system.
- A heat pump heats and cools. If your air conditioner is also aging, you are replacing two systems with one, which changes the comparison entirely.
- Heat pumps cut heating energy use sharply where electricity is cheap relative to gas. Where gas is cheap and winters are severe, a furnace can still cost less to run.
- The right answer depends on your climate, your local electricity-to-gas price ratio, and whether your AC is near the end of its life too.
In this article
- The upfront gap and what incentives close
- Operating cost: where each one wins
- The climate question
- The verdict: when each is the smart buy
- FAQ
Renee’s 19-year-old gas furnace failed inspection in October, and two contractors handed her completely different paths. One quoted $6,200 to drop in a new high-efficiency gas furnace. The other quoted $15,800 for a cold-climate heat pump, then mentioned a federal tax credit would knock $2,000 off. She stared at the two numbers and could not tell whether the heat pump was the smart long game or an expensive mistake for her climate.
A heat pump’s payback math depends on the efficiency numbers ENERGY STAR’s home-saving resources track for real installations, and if the upfront cost is the obstacle, DOE’s Weatherization Assistance Program page explains what income-qualified households can get covered.
That is the right instinct, because the answer genuinely depends on her house and her utility rates. Here is how to run the comparison instead of guessing.
The upfront gap
Start with the honest sticker difference, then see what incentives actually close.
A new gas furnace typically runs $4,500 to $8,000 installed, depending on size and efficiency. A whole-home heat pump system generally runs $12,000 to $20,000 installed. The heat pump costs more partly because it is doing two jobs, heating and cooling, in one system.
Incentives used to narrow the gap, but the main one no longer does. The federal Energy Efficient Home Improvement Credit, known as 25C, used to cover 30% of the cost of a qualifying heat pump, up to $2,000 a year, plus up to $600 for a qualifying high-efficiency furnace. The IRS’s own FAQ on the One Big Beautiful Bill Act’s energy-credit changes confirms the credit “will not be allowed for any property placed in service after December 31, 2025.” The repeal, under Public Law 119-21 (OBBB), signed July 4, 2025, covers all of Section 25C, so it closes the furnace incentive along with the heat pump one. A system installed anywhere in 2026 qualifies for neither.
A separate program is untouched by that repeal. The Inflation Reduction Act’s Home Energy Rebates, administered state by state through the Department of Energy rather than through a tax credit, can still cover up to $8,000 toward a qualifying heat pump system for an income-qualified household, per the Congressional Research Service’s own summary of the program’s Section 50122 rebate caps. It does not apply to a gas furnace, since the program covers electrification projects only. The catch is availability: only about a dozen states plus Washington, D.C. have actually launched their program and opened it to applicants, out of roughly fifty-five states and territories awarded federal funding to do so. Check your own state energy office before assuming either path, the tax credit or the rebate, applies to you. One is confirmed gone nationwide. The other depends entirely on whether your state has turned its program on yet.
| Factor | Heat pump | Gas furnace |
|---|---|---|
| Installed cost | $12,000 to $20,000 | $4,500 to $8,000 |
| Federal 25C tax credit | Ended Dec. 31, 2025 — none available | Ended Dec. 31, 2025 — none available |
| IRA Home Energy Rebate (where launched) | Up to $8,000, income-qualified households only | Not eligible; gas equipment does not qualify |
| Heats and cools | Yes, one system does both | Heats only, needs a separate AC |
| Best climate | Mild to cold with cold-climate models | Severe cold, especially with cheap gas |
| Operating cost driver | Local electricity price and efficiency | Local natural gas price |
| Typical lifespan | 12 to 15 years | 15 to 20 years |
| Best for | Owners replacing an aging AC too, or with high gas prices | Cold regions with cheap gas and a working AC |
Operating cost
This is where the heat pump can claw back its higher upfront cost, but only under the right conditions.
A heat pump does not burn fuel to make heat. It moves heat from the outside air into your home using electricity, and it does this efficiently. The Department of Energy notes that a heat pump delivers two to four units of heat for every unit of electricity it uses. A gas furnace, by contrast, can only ever deliver slightly less heat than the fuel it burns. On a pure energy basis, the heat pump is far more efficient.
But efficiency is not the same as cost, and this is where homeowners get tripped up. Your bill depends on what you pay for electricity versus what you pay for natural gas. In regions with cheap electricity, a heat pump can cut heating costs meaningfully. In regions with cheap gas and pricey electricity, a high-efficiency furnace can actually be cheaper to run month to month, even though it is less efficient on paper.
There is one more lever in your favor. A heat pump pairs well with a tight, well-insulated home, because the less heat your house loses, the less the system has to work. Before or alongside a system upgrade, our guides to insulation types that make the biggest difference and reading your energy bill for hidden waste help you cut the load the new system has to carry.
The climate question
The old knock on heat pumps was that they quit in the cold. That was true a decade ago. It is largely not true now.
Modern cold-climate heat pumps are designed to deliver efficient heat at temperatures well below freezing, with many rated to keep heating effectively down to around 5 degrees Fahrenheit and lower, per ENERGY STAR cold-climate specifications. In most of the country, a properly sized cold-climate unit handles winter on its own.
In the coldest regions, the common setup is a dual-fuel or hybrid system: a heat pump handles most of the season efficiently, and a backup gas furnace kicks in on the few brutally cold days when the heat pump is least efficient. That hybrid approach captures the heat pump’s savings most of the year while keeping the furnace’s brute-force heat for the deep freeze. It costs more than either system alone, so it makes the most sense in genuinely severe climates.
If your winters are mild to moderate, a standalone heat pump is usually the cleaner choice. If you regularly see long stretches well below zero, price out a hybrid or keep the furnace.
The verdict
Choose the heat pump if your air conditioner is also aging, since one system then replaces two and the cost comparison tilts hard in its favor. It also wins if your electricity is cheap relative to gas, if you live in a mild to moderately cold climate, or if you want the efficiency and the cooling in one unit. Any IRA Home Energy Rebate live in your state sweetens an already reasonable case for the heat pump, though the federal 25C tax credit referenced elsewhere on this page ended December 31, 2025 and no longer applies to either system. See our current breakdown of what that repeal changes for heat pump payback math before you count on it.
Stick with the gas furnace if you live in a severe-cold region with cheap natural gas, if your central air conditioner is newer and working fine, or if the upfront budget simply is not there and incentives in your state are thin. A high-efficiency furnace is a proven, lower-cost-to-install system that will run reliably for 15 to 20 years.
Whichever you choose, get the sizing right and keep up with maintenance, because an oversized or neglected system wastes the efficiency you paid for. Our guide to HVAC care that extends system life covers the upkeep that protects the investment, and a smart thermostat helps either system run only when it needs to.
FAQ
Does a heat pump work in freezing temperatures? Yes. Modern cold-climate heat pumps are rated to heat efficiently at temperatures well below freezing, many down to around 5 degrees Fahrenheit and lower. In the coldest regions, a hybrid setup pairs the heat pump with a backup furnace for the few extreme days, which captures most of the savings while keeping reliable heat.
Is a heat pump cheaper to run than a gas furnace? It depends on your local energy prices. A heat pump is far more efficient, delivering two to four units of heat per unit of electricity, but your actual bill hinges on what you pay for electricity versus gas. Where electricity is cheap it usually wins. Where gas is cheap and electricity is expensive, a furnace can cost less month to month.
Is there still a federal tax credit for a heat pump in 2026? No. The IRS confirms the Section 25C Energy Efficient Home Improvement Credit, which covered 30% of a qualifying heat pump’s cost up to $2,000 a year, “will not be allowed for any property placed in service after December 31, 2025.” The repeal came from the One Big Beautiful Bill Act, signed July 4, 2025, and it closes the furnace credit too, not just the heat pump one. A separate program, the Inflation Reduction Act’s Home Energy Rebates, can still cover up to $8,000 toward a qualifying heat pump for an income-qualified household in a state that has launched it, but check your own state energy office since availability varies widely.
Do I need new ductwork to install a heat pump? Not always. If you have existing ductwork in good shape, a ducted heat pump can use it. If you have no ducts or want to heat specific zones, ductless mini-split heat pumps mount on walls and need no ductwork at all. A contractor should assess your existing ducts for sizing and leakage before quoting.
How long does a heat pump last compared to a furnace? A heat pump typically lasts 12 to 15 years, while a gas furnace often runs 15 to 20 years. The heat pump’s shorter lifespan reflects that it runs year-round for both heating and cooling, doing the work of two systems, where a furnace only operates in the heating season.