Climate Focused Tax Incentives
Heat Pumps, Heat Pump Water Heaters and Residential Energy Storage Systems.
To claim these tax exemptions or credits, download and fill out Form DR 1322 or Form DR 1307. If the credit is assigned, submit a completed copy of Form DR 1322 or Form DR 1307 to the Department through Revenue Online. The submission process is expected to be live on May 1.
For Frequently Asked Questions (FAQs) visit the Climate Focused Tax Incentives FAQ webpage.
Information on heat pump installations made in 2024 can be found on the Colorado Energy Office's website.
The Policies To Reduce Emissions From Built Environment Act (SB 22-051) created several income tax credits and sales tax exemptions to help reduce greenhouse gas emissions.
The Act includes:
- An income tax credit for the purchase and installation of commercial and residential heat pump systems and heat pump water heaters
- A state sales and use tax exemption for commercial and residential heat pump systems and heat pump water heaters
- An income tax credit for the purchase and installation of residential energy storage systems
- A state sales and use tax exemption for residential energy storage systems
- A state sales and use tax exemption for eligible decarbonizing building materials (effective July 1, 2024)
For Tax Year 2023 Only The Heat Pump System or Heat Pump Water Heater Credit Eligibility Certification and Assignment Election Instructions form (DR 1322) is to be used for:
- The income tax credit for the purchase and installation of commercial and residential heat pump systems and heat pump water heaters
- The state sales and use tax exemption for commercial and residential heat pump systems and heat pump water heaters
For special installations, the income tax credit and sales tax exemption requires a certification that all the installation requirements have been met. In order to complete the assignment, the purchaser and seller must enter into an agreement and the seller is required to submit an electronic report of the agreement within 30 days of purchase. Form DR 1322 can be used for the certification.
Note: even if the credit is not assigned, the Department suggests the building owner provides the form with their tax return.
The Residential Energy Storage System Credit Eligibility Certification and Assignment Election Instructions form (DR 1307) is to be used for:
- The income tax credit for commercial and residential heat pump systems and heat pump water heaters, but only if it is assigned
The income tax credit and sales tax exemption do not require an installation certification. In order to complete the assignment, the purchaser and seller must enter into an agreement and the seller must submit an electronic report of the agreement within 30 days of purchase. The DR 1307 will meet that requirement.
Note: even if the credit is not assigned, the Department suggests the building owner provides the form with their tax return.
Because these credits and tax exemptions were available starting January 1, 2023, and some sellers would have already needed to send their agreements soon after that, the Department promulgated an emergency rule that says if an assignment is accepted between January 1 and June 30, 2023, the deadline to submit a DR 1322 or DR 1307 is August 30, 2023.
To claim these tax exemptions or credits, download and fill out the Form DR 1322 or DR 1307. For assignments of the income tax credits, submit a completed copy of Form DR 1322 or DR 1307 to the Department through Revenue Online. The submission process is expected to be live on May 1.
Certain state-administered local governments are allowed to determine whether to apply the sales tax exemption against their local sales tax. To determine whether local governments across the state allow these exemptions, taxpayers can use the Colorado Sales Tax Lookup Tool. The exemptions for state administered local jurisdictions are also listed in the DR 1002. Specifics about purchases made by contractors and retailer-contractors are in FYI Sales 6: Contactors and Retailer-Contractors.