Installing a new high-efficiency furnace or air conditioner in Minnesota can qualify for rebates and tax credits that meaningfully reduce your net cost. These programs change regularly, so this guide covers the current landscape as of 2026 — though always verify current amounts directly with the programs before purchasing.
Federal Tax Credits (IRA — Inflation Reduction Act)
The Inflation Reduction Act (IRA) created federal tax credits for home energy improvements through the Energy Efficient Home Improvement Credit (25C). This credit has expired. Under the One Big Beautiful Bill Act, 25C terminated for property placed in service after December 31, 2025 — so a furnace, AC, or heat pump installed in 2026 does not qualify. The details below describe the credit as it applied through the 2025 tax year, for homeowners still filing on a 2025 installation:
Buy the same name-brand HVAC system the pros install — shipped factory-direct to your door. No middleman, 5-star rated, and financing available.
Applies only to equipment placed in service on or before December 31, 2025. Natural gas furnaces: 30% of equipment and installation cost, up to $600/year. Central AC: 30% of equipment and installation cost, up to $600/year. Heat pumps (air source): 30% of cost, up to $2,000/year. Heat pump water heaters: 30% of cost, up to $2,000/year.
The credit applies to the qualified equipment cost. To qualify, furnaces must meet specific efficiency thresholds — the IRS and ENERGY STAR maintain lists of qualifying products. Most Goodman 96%+ AFUE furnaces qualify. You claim the credit on IRS Form 5695 when filing your federal taxes. It's a direct credit (reduces tax owed, not just taxable income) up to the annual cap.
Important note: the IRA credits have annual caps per category. If you replace both a furnace and AC in the same tax year, you may be limited to $600 for furnaces and $600 for AC — $1,200 total for those two categories combined. Heat pumps have a separate $2,000 cap.
Xcel Energy Rebates (Minnesota's Largest Utility)
Xcel Energy offers rebates for residential HVAC efficiency upgrades in their Minnesota service territory:
Gas furnace rebates (existing homes): Xcel pays by AFUE tier — $200 at 95% AFUE, $300 at 96% AFUE, and $400 at 97% AFUE. An 80% AFUE furnace does not qualify for any Minnesota gas rebate — you need 95% or higher. Smart thermostat: $50 for an ENERGY STAR connected thermostat. Central AC: $450 at 13.4 SEER2 or better, with an AHRI reference number on the application. Rebates are filed after installation through Xcel's Trade Partner rebate application. Verify current amounts at xcelenergy.com/rebates before you buy.
Minnesota Energy Programs (MHFA and CIP)
The Conservation Improvement Program (CIP) requires Minnesota gas and electric utilities to run energy efficiency programs. This creates rebate opportunities beyond just Xcel — your specific utility may offer programs:
CenterPoint Energy (natural gas) pays $300 for a 94–95.9% AFUE gas furnace and $400 for 96% AFUE or higher. CenterPoint also rebates water heaters ($75 tank, $250 tankless) and ducted dual-fuel heat pumps paired with a gas furnace ($1,100). It does not rebate cooling-only AC or mini-splits — those belong to your electric utility. Note that propane homes earn $0 from CenterPoint regardless of AFUE, because CenterPoint does not supply that fuel. Minnesota Energy Resources (MER): $300 for a qualifying high-efficiency furnace, $500 at 97% AFUE. Rural electric cooperatives: many Minnesota co-ops set a higher SEER2 floor than Xcel — Connexus starts at 13.8 SEER2 and Dakota Electric at 15.2 SEER2 — so a minimum-efficiency AC often earns nothing from a co-op. Many co-ops also rebate heat pump installations.
Check your specific utility's website or call their energy efficiency line to verify current programs before purchasing equipment.
Low-Income Programs
Minnesota has additional programs for income-qualified homeowners: Weatherization Assistance Program (WAP) — free energy efficiency improvements including furnace replacement for qualifying low-income households, administered through county community action agencies. Energy Assistance Program (EAP) — helps low-income households pay heating bills; can reduce the urgency of an emergency furnace replacement situation.
How to Stack Rebates and Credits
For a 2026 installation the federal 25C credit is no longer available, so the stack is: your utility rebate (Xcel $200–$400 or CenterPoint $300–$400 by AFUE tier), PLUS any smart-thermostat rebate, PLUS manufacturer promotions.
A typical scenario: a Goodman 96% AFUE furnace from Furnace Direct installed by a local licensed contractor. On the utility side, a 96% AFUE unit earns $300 from Xcel or $400 from CenterPoint, plus $50 for a qualifying smart thermostat. Stepping up to 97% AFUE raises the Xcel rebate to $400. Those rebates come off a cost base that is already lower than a contractor-supplied quote, which is where most of the savings actually comes from.
Maximizing Your Rebate Capture
Keep all receipts and documentation. Confirm equipment model numbers meet efficiency requirements before purchasing. File the federal tax credit (Form 5695) with your return in the year of installation. Submit utility rebate forms promptly — many expire within 90 days of installation. Ask your installing contractor if they handle rebate paperwork (many do).
Shop Factory-Direct to Maximize Your Total Savings
Rebates and credits apply to your total cost, but the biggest lever is starting with lower equipment cost. Furnace Direct's factory-direct pricing on Goodman equipment saves $500–$1,500 vs. contractor-supplied pricing before any rebates are applied. Combined with available incentives, total savings can reach 40–50% off typical contractor installation quotes.
Browse at furnace.direct/collections/heating or furnace.direct/collections/cooling.
Related reading: Annual Heating Cost Guide | How to Buy HVAC Equipment Online | Goodman Furnace Comparison
Get your furnace replaced.
Tell us a little about your home and what you're replacing. A specialist will call you to work out exactly what you need, go over the price, and get it replaced. No obligation.