Which Type of Heat Pump Is Right for Your Home?

Beyond the two main groups of heat pumps, there are many different subtypes, each with their own pros and cons.

Sam Becker Contributor
Sam Becker is a freelance writer whose work has appeared in and on CNBC, Fortune, USA Today, Business Insider, and more. Sam is also the author of the growing finance and strategy-focused newsletter, "Not Pretty, Not Rich."
Sam Becker
5 min read
A heat pump sitting outside a house with grass and weeds in front of it.

Most heat pumps will qualify for the federal tax credit that gives 30% back, up to $2,000.

Alex Potemkin/Getty Images

As the weather starts heating up, will more people start turning to heat pumps to keep their houses cool? Despite their misleading name, heat pumps can both cool and heat homes from one unit, all while saving you money and decreasing your carbon footprint.

Heat pumps are becoming increasingly common as homeowners and builders look for more efficient methods to heat and cool buildings. As of 2020, roughly 16 million homes in the US were using heat pumps, according to data from the Energy Information Administration, and states and cities around the country are also incentivizing homeowners to adopt them.

Given that policymakers are, well, "pumped" about heat pumps, knowing the basics might be a good idea -- particularly if you're a homeowner.

What is a heat pump?

A heat pump utilizes the same underlying science as a refrigerator and, in that sense, isn't really a "pump" in the way most people traditionally think about them.

"It is a pump, but 'heat' is not really a thing," said Rhett Allain, an associate professor of physics at Southeastern Louisiana University. "People think of heat as like a fluid," meaning that it flows from one thing to another, he said, but it's a bit more complicated than that. In effect, Allain said, a heat pump does work by helping energy move "from the hot thing to the cold thing."

When it comes down to it, it's all about finding a state of equilibrium in terms of temperature -- much the same way that electricity works. With that in mind, Allain said that rather than thinking of a pump, "the better example is your refrigerator."

"The back of it gets hot and the inside gets cool," he said. "You need to take the energy from somewhere and then it has to go somewhere else." So, with a heat pump or air conditioner, the energy is pushed outside, and in the case of a refrigerator, the energy goes behind the appliance (which is why the back of a fridge is warm).

On a practical level, it can be a bit of a mind-bender, but on a scientific level, it's fairly simple: Air conditioners, refrigerators and heat pumps all perform the same basic function of leveling out air temperatures. They use electricity to do it, rather than, say, a gas-powered furnace, which ignites gas to increase the temperature

To sum it up: When it's warm outside, a heat pump moves warm air outside and cool air inside, and when it's cold out, it does the opposite. A refrigerator, for comparison, only works in one direction -- moving warm air outside.

Ducted vs. ductless heat pumps

There are numerous types of heat pumps that can be used in a home or other type of building. They can be categorized in two primary ways, depending on the specifics of the building. One way is to group them into "ducted" or "ductless" heat pumps.

"A ductless system is one that has no duct attached," said Edison Dika, a senior energy consultant at the Center for EcoTechnology. In other words, if a home has air ducts (as many newer homes tend to), a ductless system would be unnecessary, as the system itself comprises indoor head units in different rooms connected to an outdoor unit via wires and pipes. "They might look like radiators," Dika said of the head units (often called "mini splits"), explaining that they are used "as a way to distribute the air for both heating and cooling."

If a home has air ducts, "air-source" heat pumps are generally the most common type. 

A ducted heat pump system would incorporate the same outdoor unit, but it would connect to a home's air ducts -- assuming the home has them. "It distributes the air to every single room in the home using a conventional duct system," Dika said. 

Types of heat pumps

Beyond the two broad categories of air-source heat pumps (ducted and ductless), there are numerous subtypes. 

Air-source heat pumps

As noted, air-source heat pumps, both ducted and ductless, tend to be the most common types found in homes and buildings around the US. These work by heating or cooling air using a refrigerant pumped outside and cooled or warmed by the air outside. They are also eligible for federal tax credits if purchased and installed in a home before the end of 2032 -- 30% of the project's cost, up to a maximum of $2,000.

Geothermal heat pumps

Geothermal heat pumps use the ground under and around a home or structure as a medium to heat and cool, instead of the ambient air. Because the ground has a relatively constant temperature compared to the outside air (especially when you dig down a few feet), it can reduce energy use to moderate a home's temperature. 

Geothermal heat pumps may be better for homes in areas with more extreme climates or wider temperature fluctuations. But they do cost more to install because a backhoe is likely going to be required. "Geothermal would be much more expensive because of the digging and drilling," Dika said. "But they may be more efficient since the ground stays at a constant temperature all year -- you're not dealing with the constant variations that happen with outdoor temperatures."

Geothermal heat pumps also qualify for federal tax credits, on a variable scale depending on when they're installed. If installed before the end of 2032, they qualify for a 30% tax credit, with no maximum. 

Absorption heat pumps

Absorption heat pumps are, in effect, air-source heat pumps. But there's an important distinction: They're not powered by electricity, but rather by another heat source, such as gas or solar-heated water. When used in residential buildings or dwellings, these heat pumps utilize an ammonia-water absorption cycle to facilitate heating and cooling. 

These are less common than other types of heat pumps. Check with your installer and with an accountant to verify if they'll qualify for federal tax credits.

Comparing types of heat pumps

The specific costs related to a heat pump purchase and installation will depend on numerous factors specific to your home -- square footage, whether it has ducts, how well insulated it is, etc. So, it's difficult to say how much a heat pump system will cost. On average, however, a heat pump system will run the typical American around $5,500, according to 2023 data from the American Society of Home Inspectors.

In terms of tax incentives, note that your state and city may have additional programs to help lower purchase and installation costs. For instance, Oregon has a specific program for landlords interested in installing heat pumps in rental units. As always, it's best to see what local incentives and credits might be available to you.

Along with ballpark costs (via the American Society of Home Inspectors, generally not including possible ductwork, and permit costs), here is a quick rundown and review of the types of heat pump systems:

Types of heat pumps

Type DescriptionTypical costFederal tax incentive
Air-source (ducted) Uses ambient air temperature to cool and heat$3,000–$7,500Up to 30% of cost (max. $2,000)
Air-source (ductless) Uses head units, or mini-splits, to cool and heat$2,000–$5,000Up to 30% of cost (max. $2,000)
Geothermal Uses the ambient temperature of the ground to cool and heat$6,000–$20,000Up to 30% of cost
Absorption Uses a source other than electricity to run -- typically, gas or solar-heated water$4,000–$8,000Potentially up to 30% of cost