Heat Pump Water Heaters Qualify for a Tax Credit
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.
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:
- 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.
- The unit was installed after December 31, 2017, and before January 1, 2021.
- 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!