There is a Federal Energy Efficiency Tax Credit on Qualifying Gas, Oil, Propane Water Heaters as well as Electric Heat Pump Water Heater and Solar Water Heaters. If your water heater is on its last legs, you might as well upgrade now and save some money. Newer water heaters require less energy and time to heat water. Reduce the waiting time between showers and doing laundry.

For 2011, the Federal Tax Credit for energy efficiency drops to 10%, up to a $500 maximum. (2010 Federal Tax Credit information)

• $300 cap for water heater
• Gas, Oil, Propane Water Heaters must have Energy Factor >= 0.82 or a thermal efficiency of at least 90%
• Newer Hybrid water heaters are also available
• Electric Heat Pump Water Heater requirements are the same as ENERGY STAR: Energy Factor >= 2.0.

• Existing home and principal residence.   New construction and rentals do not qualify.
• Expires December 31, 2011 – Consult the What other rebates are available? below for other possible rebates.

The 2011 tax credit reverted to  2005-2008 levels. Anyone who previously took advantage of the program can’t apply for incentives that exceed $500.  IE If you claimed $500 between 2005 – 2008 on a previous energy efficiency project, or at least $500 tax credit from 2009 – 2010, you are ineligible for the 2011 energy efficiency tax credit.

If you used say $200 of the $500 energy efficiency tax credit from 2005 – 2008, and did not utilize the 2009 – 2010 energy efficiency tax credit, you would still have a $300 credit available.

Federal Energy Efficiency Tax Credit on Qualifying biomass fuel stoves or Wood Heat Stoves, Pellet Stoves, Fireplace Inserts.  There is also a Federal Tax Credit for Energy Efficiency on Water Heaters, Wood Heat Stoves, Pellet Stoves, Furnaces and Boilers, Geo-Thermal Heat Pumps, Windows, Doors, and Skylights.

Consider an on demand Tankless Water Heater if your situation allows for it.  Most need ready access to a good sized gas pipe and exhaust vent.

Solar Water Heaters are covered if they are EnergyStar certified. The Federal Tax Credit for solar water heaters is 30% of the cost including installation and labor. It expires December 31, 2016.

AO Smith makes the hi tech Vertex 100 water heater that is very efficient, but requires PVC pipe venting not normal metal venting. Also consider installing radiant floor heating instead of using a gas furnace as these newer water heaters support radiant heating.

This credit reduces the amount of tax you owe. The credit is a reduction of total income tax at the bottom of your return. This tax credit is a non-refundable tax credit. Consult your tax adviser for details. Use it or lose it!

Double dip! Local utilities like PG&E have their own rebates for Energy Efficient Appliances.

Note: It is difficult to find larger sized water heaters with Energy Factor’s not qualify.

Be sure to check out our reduce water heater use, water saving tips and ways to save energy.

A Tankless Water heater produces hot water as hot water is requested.  Traditional water heaters have large tanks to store and heat water, so they continually have to keep the water heated.

A Tankless Water heater uses electricity or gas to quickly heat water that is needed.  Different units are capable of product hot water at different rates. Gas units generally perform better.  Large units or multiple units are required if you need to have say a kitchen sink, shower, and other things operating at the same time. Savings up to 30% can be realized.

everun even makes a stylish tankless water heater that you need not hide. They cost from $200 to $1200.

Some key items to look for are electrical or gas needs of the unit, and venting requirements. Many gas units require a certain size of gas inlet and exhaust vent size.  I found these requirement prohibitive in my installation attempt.  Electric tankless do not require expensive vent piping.

Climate is also a factor. Those living in very cold areas with water barely above freezing in the winter should think twice before going tankless.

Federal tax credits for energy efficiency are available to help reduce the cost. Many local gas utilities also have rebates.

Be sure to also consider Hybrid Water Heaters or an Energy Efficient water heater.

Reduce Water Heater Energy Use with your present water heater.