30% Federal Tax Credit for Heat Pump Water Heaters [2023]

For full information on all federal tax credits, visit energystar.gov.

Is Your Heat Pump Water Heater Eligible for a Federal Tax Credit under the Inflation Reduction Act?

On January 1, 2023, new federal tax credits came into effect under the provisions set forth in the Inflation Reduction Act. These tax credits cover a wide range of home energy efficiency improvements, including equipment like heat pump water heaters, natural gas water heaters, air conditioners, heat pumps, and more. Additionally, upgrades to the home envelope like doors, windows, insulation, etc., can qualify for tax credits.

These new tax credits will replace the Non-Business Energy Property Tax Credits, which were also extended under the IRA through December 31, 2022. You can find information about the tax credits for water heaters purchased in 2022 or earlier here.

Federal Tax Credit Overview

Annual Limits: 30% of the project cost up to a $3,200 annual maximum for all energy efficiency improvements claimed under this credit, subject to aggregate limits. This breaks down to:

• Up to $2,000 annual limit toward the purchase of any combination of air source heat pumps, heat pump water heaters, and biomass stoves/boilers.
• Up to $1,200 annual limit toward the purchase of any combination of central air conditioners, furnaces, boilers, plus other home envelope improvements (e.g. windows/doors/skylights, insulation, electrical).
• There are per-project limitations as well. Below, we will detail the tax credits available for heat pump water heaters. For further details about tax credits for other types of energy efficient home improvements, visit energystar.gov.

Dates: Equipment must be purchased and installed January 1, 2023–December 31, 2032.

Property Requirements: Equipment must be installed in an existing home and your principal residence (the place you occupy most of the time). New construction and rentals do not apply. The principal residence must be in the United States and may be a house, houseboat, mobile home, cooperative apartment, condominium, or a manufactured home to qualify.

Pro Tip: To make the most of the tax credits, spread your energy efficiency improvements over a few years. The $3,200 annual limit and any aggregate limits reset each year through 2032. You can find ways to mix and match the tax credits for maximum savings by looking at your options on the ENERGY STAR website. Also, please be sure to consult your accountant or tax professional.

Water Heater Tax Credit Details

Please consult your accountant or another tax professional to ensure that you meet all the requirements necessary to receive tax credits for your water heater upgrade. Additionally, you can ask Ray’s Complete Plumbing (or your local plumbing contractor) for details about your equipment to verify its eligibility.

Heat Pump Water Heaters:

• You can claim 30% of the project cost, up to a $2,000 maximum credit.
• Heat pump water heaters that have earned the ENERGY STAR are eligible for this credit. You can find a list of ENERGY STAR certified models here.

Natural Gas Water Heaters

• You can claim 30% of the project cost, up to a $600 maximum credit.
• The water heater must meet the following efficiency requirements:
  • Gas Storage: ENERGY STAR certified models are eligible as follows: > 0.81 UEF for tanks less than 55 gallons and > 0.86 UEF for tanks greater than or equal to 55 gallons.
  • Tankless Gas: ENERGY STAR models with > 0.95 UEF are eligible.

How Do I Apply?

To claim any tax credits, fill out and file the appropriate form with your tax return. We will post a link here to the 2023 form when it becomes available.

Please also note that you can only claim these tax credits if you owe tax. If you do not owe tax, you will not receive the tax credit as a refund. Tax credits are administered by the IRS, and the credit amounts you may receive are subject to IRS regulations. Therefore, we highly recommend consulting a tax professional for advice on tax preparation.

What Other Equipment Qualifies for a Tax Credit?

Even if you don’t plan on upgrading your water heater, you might intend to purchase another qualifying household appliance like a new central air conditioner or heat pump. Check the entire list of qualifying home improvements.

There are also separate tax credits available for renewable energy home improvements, like wind, solar, and geothermal. These upgrades do not count toward the $3,200 annual maximum under the energy efficiency tax credits.

The IRA also included modifications and extensions for tax credits available to home builders and commercial buildings.

Call Ray’s Complete Plumbing today for a free quote on a new heat pump water heater: (941) 205-2133

DISLCAIMER: The tax credit information contained within this website is provided for informational purposes only and is not intended to substitute for expert advice from a professional tax/financial planner or the Internal Revenue Service (IRS). Ray’s Complete Plumbing does not guarantee the accuracy of the information provided. For the most updated information on the federal tax credits, visit energystar.gov

*NOTE FROM ENERGY STAR: Under the tax code, eligible equipment must “meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year.”