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 survey found that 78% of Americans are stressed about their energy bills. If you’re looking to reduce your energy spending, you can rightly think about checking your heating and cooling system first, but you can also save some money on your water heater.

According to the US Department of EnergyWater heating is one of the largest residential energy uses, accounting for nearly one-fifth of total electricity costs. That costs the average American $400 to $600 per year.

So how can you save money on heating water? Well, you could run less hot water. You can also try setting your water heater temperature a little lower to get some relief. However, you will need to find a balance between comfort and conservation. If you have an older water heater, you can upgrade it to a more energy-efficient option. Upgrading to a new water heater that meets the latest DOE Standards could save households more than $100 per year. Some models will even produce enough savings to pay for themselves in just a few years.

However, upgrading a water heater can be quite expensive. TO recent discussion on reddit Users noted that new water heaters cost them anywhere from about $1,000 to more than $3,000, and some users said they were quoted even 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 upfront savings are available thanks to federal, state, and local tax credits and incentives. It’s not only good for the planet, but also for your pocketbook. We’ll walk you through everything you need to know to get the best savings on a new, energy-efficient water heater.

Types of water heaters

There are a variety of types of water heaters that you will find when choosing an option for your home. It is best to understand the potential benefits and challenges each type offers so you can determine which option is best for your home’s needs.

Traditional Tank Water Heaters

There are two main types of standards. tank water heaterswhich vary depending on the type of energy 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 It can heat water using electric resistance coils. These models are generally easier to install and maintain, but may have higher operating costs compared to gas-powered ones.

Tankless water heaters

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

Matt Kunz, president of Rooter Plumbing, said choosing between a tank heater and a tankless heater is the most common decision homeowners have to make.

“A tank 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 as it heats water on demand. They also save more space, but they generally take up more space up front,” he said.

Heat pump water heaters

TO heat pump water heater It uses electricity to move heat from the air or ground to heat water. You can think of them as working like a refrigerator in reverse. While a refrigerator draws heat from inside and releases it into the air, a heat pump water heater draws heat from the air (air source heat pumps) or the ground (geothermal heat pumps) and uses it to heat the water. This method makes them very efficient and can significantly reduce energy costs, especially in moderate climates.

solar water heaters

However, there are other water heaters that can be even more energy efficient, such as solar water heaters. These heaters use solar panels to capture sunlight and convert it into energy for heating, which is then transferred to the water. These systems can provide substantial savings on energy bills, particularly in sunny regions, but generally have higher purchase prices and unique maintenance needs.

Point-of-use water heaters

Point of use water heater The systems are small units that are typically 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 of the time, these systems are used to complement larger systems.

Federal Water Heater Tax Credit

As you search for the right water heater for your home, consider the incentive programs available for 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 the needs of different homeowners, 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 main federal tax credits available to help cover the cost of your upgrade: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.

Energy Efficient Home Improvement Credit

He Energy Efficient Home Improvement Credit is part of the Inflation Reduction Act of 2022 and incentivizes homeowners to invest in energy efficiency improvements, including certain water heaters.

Eligible systems may include electric heat pump 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 limit of $1,200 per year and up to $2,000 per year for qualified heat pumps. Qualified heat pumps must meet or exceed the The highest level of efficiency of the Consortium for Energy Efficiency.

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

Residential Clean Energy Credit

He Residential Clean Energy Credit It specifically focuses on 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 declining credit rates still available in subsequent years. Unlike the Energy Efficient Home Improvement Credit, this credit has no maximum limit, allowing homeowners to potentially benefit significantly based on total installation costs.

Other Water Heater Rebates and Incentives

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

Other IRA-authorized and funded refunds are implemented by individual states. To see if your state has opened refund requests, check this DOE database.

You can also browse online incentive databases such as Database of State Incentives for Renewables and Efficiencywhich compiles incentives at the state and local level and allows you to search by location and technology. Please note that the database may not be complete and the programs listed may have changed, but it is a great starting point.