Water Heater Tax Credits: How You Can Save on Your Energy Costs

If you’re tired of high utility bills, you’re not alone. A recent CNET poll found that 78% of Americans do Stress their energy bills. If you’re looking to cut down on your energy spending, you might rightly consider looking at your energy Heating and cooling system First, but you can also save some money on your phone Water heater.

According to US Department of EnergyWater heating is one of the largest residential energy uses and accounts for approximately one-fifth of total electricity costs. This costs the average American citizen $400 to $600 per year.

So how can you save money on water heating? Well, you can run less hot water. You can also try Adjust the temperature of your water heater A little less for some comfort. However, you will need to find a balance between comfort and conservation. If you have an older water heater, you can upgrade to a more energy efficient option. Upgrade to a new water heater that meets the latest Department of Energy standards It can save families more than $100 annually. Some models will produce enough savings to pay for themselves Only a few years.

However, upgrading a water heater can be very expensive. A Recent Reddit discussion Users have noticed new water heaters costing them anywhere from $1,000 to upwards of $3,000, with some users saying they were quoted higher amounts for larger capacity, tankless water heaters. However, there are ways to save money when upgrading.

If you’re considering upgrading, you’ll be happy to know that there are upfront savings offered thanks to federal, state and local tax credits and incentives. Not only is it good for the planet, it’s good for your wallet, too. We’ll walk you through everything you need to know to get the best savings on your new energy efficient water heater.

Types of water heaters

There are a variety of Types of water heaters Which you will encounter when choosing an option for your home. It’s best to understand the potential benefits and challenges each type offers in order to know which option is best for your family’s needs.

Conventional tank water heaters

There are two basic types of standards Tank water heatersWhich varies depending on the type of power source available. Gas tank water heaters use fossil fuels, natural gas or propane, to heat water, which is stored in a large tank.

Electric tank water heaters Water can be heated using electrical resistance coils. These models are usually easier to install and maintain but may have higher operating costs compared to gas.

Tankless water heaters

Tankless water heatersalso known as on-demand water heaters, can heat water directly without a tank. They provide a continuous supply of hot water, which can be more energy efficient because they only heat water when needed.

“We’re going to have a lot of fun,” said Matt Kunz, president of Mr. Rooter Plumbing, Choosing between a tank and a tankless heater is the most common decision homeowners have to make.

“A tankless water heater stores and heats large amounts of water and is suitable for homes that have a high demand for hot water. A tankless heater is more energy efficient because it heats water on demand. It is also more space efficient but is usually more energy efficient “Expensive up front,” he said.

Heat pump water heaters

A Heat pump water heater It uses electricity to transfer heat from the air or ground to heat water. You can think of them as It works like a refrigerator in reverse. While a refrigerator removes heat from the inside and releases it into the air, a heat pump water heater draws heat either from the air (air source heat pumps) or from the ground (Geothermal heat pumps) and uses it to heat water. This method makes them highly efficient, and can significantly reduce energy costs, especially in moderate climates.

Solar water heaters

There are other water heaters that can be more energy efficient, for example Solar water heaters. These heaters are used Solar panels To capture sunlight and convert it into heat energy, which is then transferred to the water. These systems can provide significant savings on energy bills, especially in sunny areas, but they typically carry larger price tags to purchase and have unique maintenance needs.

Point-of-use water heaters

Point of use water heater The systems are small units that are usually installed near the point of use, such as sinks or showers. They provide hot water directly where it is used, heating the water quickly. Most often, these systems are used to supplement larger systems.

Federal tax credit for water heaters

As you search for the right water heater for your home, consider the incentive programs available with your purchase. “There are federal and local incentives and credits available to homeowners when purchasing a new water heater,” Kunz said. “Each program and credit is based on different homeowners’ needs, so it’s important to do your homework to find the incentive that best fits your needs to see if you qualify.”

There are two primary federal tax credits available that help cover the cost of the upgrade: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.

Energy Efficient Home Improvement Credit

the Energy Efficient Home Improvement Credit It is part of Inflation reduction law of 2022 It incentivizes homeowners to invest in energy efficiency upgrades, including some water heaters.

Eligible systems can include heat pump electric water heaters, gas water heaters with a certain energy efficiency rating and more. Homeowners can claim a tax credit of up to 30% of the cost, with a maximum credit of $1,200 per year, and up to $2,000 per year for qualifying heat pumps. Qualified heat pumps must meet or exceed Union for Higher Levels of Energy Efficiency.

This credit helps offset the upfront costs of purchasing and installing qualified energy-efficient water heaters, making it an attractive option for those looking to boost the efficiency of their homes. Credits can be claimed for home improvements made through 2032.

Residential Clean Energy Credit

the Residential Clean Energy Credit It specifically targets renewable energy technologies, including geothermal heat pumps and solar water heaters.

Homeowners can receive a tax credit of 30% of the cost of installing qualified geothermal systems through 2032, with descending credit rates still available in subsequent years. Unlike the energy-efficient home improvement credit, this credit has no maximum, allowing homeowners to benefit greatly based on total installation costs.

Discounts and other incentives on water heaters

In addition to federal tax credits, there may be other incentives available to you depending on where you live. To find information about incentives offered by a state, municipality, or utility company for energy-efficient water heaters, homeowners can start by visiting government websites, especially those of state energy offices or energy departments, which usually provide information on available incentives and programs. Also check your utility company’s website to see any rebates and incentives offered for energy-efficient appliances.

Other deductions authorized and funded by IRAs are implemented by individual states. To find out if your state has opened applications for rebates, check it out This database is from the Department of Energy.

You can also check online incentive databases such as State Incentives for Renewable Energy and Efficiency Databasewhich aggregates incentives at the state and local level and allows you to search by location and technology. Note that the database may not be comprehensive, and the programs listed may have changed, but it is a great starting point.