Tankless Water Heaters: Tax Credit Info

Find out more how to get water heater tax credits or tax breaks on Energy Star tankless water heaters, as the government tax incentives.

A tax credit for water heaters is the incentive program designed by the government for the energy-efficient heating appliances to provide tax breaks for the consumers.

photo: ao smith

Before you buy a heater, keep in mind that many tankless water heaters are included in this tax credit program together with the renewable energy systems, and that means saving money for you, saving energy, and protecting the environment.

Who Is Eligible for Tankless Water Heater Tax Credit?

In general, 3 types of heaters are covered by the government tax credits as the incentive to buy appliances that are energy efficient:

  • Gas (natural gas and propane) and oil heaters
  • Electric heat pump water heaters
  • Solar water heaters

Excluded from the government grants are the electric tank and electric tankless water heaters. Some manufacturers claim that their heaters are Energy Star recognized and, therefore, eligible for the water heater tax credit, but you should always confirm as the requirements change. These models are actually suitable for most electric utility rebate programs.

If you live in the US and Canada, you may be eligible to receive rebates on tankless water heaters when you buy Energy Star qualified units. You can buy Bosch, Rinnai, Noritz, Takagi, AO Smith, Rheem… all of them are manufacturers of on-demand appliances and have models which are Energy Star qualified.

The US and Canadian governments encourage consumers to replace their old, low-efficient appliances with today’s modern high-efficient heaters and, therefore, apply for the water heater tax credit.

Keep in mind that most residential tank-type water heaters will not qualify for the tax credit, but some commercial are eligible for tax breaks and rebates. Check if the UEF or Uniform Energy Factor is 0.95 or higher, or simply check for the blue label with the Energy Star logo.

How to Claim

If you purchased your high-efficiency Energy Star tankless heater in 2009, you might be eligible for government grants, so complete and send your application by April 15, 2010. US citizens will use form 5695 and fill out the residential energy tax credit line.

Provide the receipt, Manufacturer Certification Statement (it shows that the product qualifies for the tax credit), and installation costs.

Water heater tax credit is not an instant rebate; it has to be claimed on your federal income tax at the end of the year. This water heater credit then increases the tax refund you will receive or decreases your payment amount.

You could be eligible for 30% in tax credits but up to a total credit of $1,500 and for your existing home only. The heater must be installed and be able to use by December 31, 2009, for example, so that you can apply.

$1,500 is the maximum incentive you can get from the government, and it applies to the two years for the heater purchase and installation costs. If you received the grant in 2009 already, you are not eligible for the tax break in 2010.

For solar heaters, the unit must be installed and ready to use by December 31, 2016. It applies to new and existing homes, and the requirement is that at least half of the energy must come from the sun and be used for water heating, but not swimming pools and hot tubs.

The maximum of $1500 does not apply to solar water heaters, but they are eligible for a 30% tax credit and with no upper limit.

What Else You Can Do to Save Energy on Water Heating

We use hot water in the shower, clean the dishes, wash the clothes, for shaving… but the question is, where we can save on hot water. Per a study done in the US, we spend between $400 and $600 on water heating, making it the second-largest energy expenditure.

It is up to you if you will use the tank type or tankless water heater, for example. If you buy a tankless, high-efficiency, or condensing water heater, you can save significantly on energy usage.

In both cases, you can save if you follow specific rules:

  • Set the thermostat for the outgoing temperature of 120 F.
  • Put the insulation blanket or jacket on your tank-type heater to reduce the standby heat loss.
  • Insulate the piping.
  • Turn the unit off when you are away.
  • Take shorter showers and install a low-flow showerhead instead of filling the full bath with hot water.

To check the approved energy efficiency appliance rebate programs, including the water heater tax credit, for any US state and for 2010, follow the official US Department of Energy link here.

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