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Heat Pump Water Heaters Qualify for a Tax Credit


Posted: Sep 16, 2020

Thanks to an extension of a federal incentive for energy-efficient equipment, your new heat pump water heater may be eligible for a $300 tax credit — on top of any rebates offered by your local utility.

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The IRS program, called the Nonbusiness Energy Property Credit, specifies that high-efficiency water heaters qualify for the credit, as long as the following conditions are met:

  1. The water heater’s Uniform Energy Factor (UEF) rating, a measurement of its energy efficiency, is greater than or equal to 2.2. Heat pump water heaters have UEF ratings between 2.75 and 3.5.
  2. The unit was installed after December 31, 2017, and before January 1, 2021.
  3. The water heater is installed in an existing primary residence — second homes, new construction and rentals do not qualify.

You’ll want to keep a copy of the Manufacturer’s Certification Statement, a document from the water heater manufacturer certifying that your unit qualifies for the tax credit, for your records, but you don’t have to submit a copy with your tax return. Manufacturer’s Certification Statements for all major brands can be found online.

If you’ve made other energy-efficient home weatherization, heating and cooling upgrades, you might be eligible for an even larger tax credit up to $500. To claim your credit, submit IRS Form 5695 with your 2020 tax return.

Some states also offer tax credits for energy-efficient home upgrades. For instance, if you live in Montana, your heat pump water heater qualifies for a state tax credit of 25% of the purchase and installation price, up to $500. In the end, tax credits are one more way you can save with a heat pump water heater. Just make sure to have yours installed before the federal credit expires at the end of 2020!

What are Tiers?

Energy efficiency levels and features of heat pump water heaters vary by product tier. Higher tier products have greater efficiency and more advanced product features.

The higher the energy factor, the more efficient the water heater.