Water Heater Tax Credits: How to Save on Your Energy Costs
If you’re tired of high energy bills, you’re not alone. A recent CNET survey found that 78% of Americans are stressed about their energy bills. If you want to save on your energy consumption, you might rightly consider looking at your heating and cooling system first, but you can also save some money on your water heater.
According to the US Department of EnergyWater heating is one of the largest energy consumers in homes and is responsible for almost a fifth of total electricity costs. That costs the average American $400 to $600 per year.
So, how can you save money on water heating? You could run less hot water. You can also try lowering the temperature of your boiler for some relief. However, you will have to find a balance between comfort and conservation. If you have an outdated water heater, you can upgrade to a more energy efficient option. Upgrade to a new boiler that meets the latest standards DOE Standards households can save more than $100 per year. Some models will even generate enough savings to pay for themselves only a few years.
However, it can be quite expensive to upgrade a water heater. A recent Reddit discussion users noted that new water heaters cost them anywhere from $1,000 to over $3,000, with some users saying they got even higher amounts for larger capacity water heaters and tankless water heaters. However, there are ways to save money when upgrading.
If you’re considering an upgrade, you’ll be happy to know that upfront savings are offered thanks to federal, state, and local tax credits and incentives. It’s not only good for the planet, but also for your wallet. We will guide you through everything you need to know to get the best savings on a new, energy-efficient water heater.
Types of boilers
There are different types of water heaters you will encounter when choosing an option for your home. It’s best to understand the potential benefits and challenges of each type so you can determine which option best suits your household’s needs.
Traditional tank water heaters
There are two primary types of standards tank water heaterswhich vary depending on the type of energy source available. Gas tank water heaters use the fossil fuels natural gas or propane to heat water, which is stored in a large tank.
Electric tank water heaters can heat water using electrical resistance coils. These models are generally easier to install and maintain, but may have higher operating costs compared to gas models.
Tankless water heaters
Tankless water heatersalso called on-demand water heaters, can heat water directly without a storage tank. They provide a continuous supply of hot water, which can be more energy efficient because they only heat water when necessary.
Matt Kunz, president of Mr. Rooter Plumbing, said the choice between a tank and tankless heater is the most common decision homeowners have to make.
“A tank water heater stores and heats large amounts of water and is suitable for homes with a high demand for hot water. A tankless heater is more energy efficient because it heats water on demand. They are also more space efficient, but are generally more energy efficient. Upfront expensive ” he said.
Heat pump boilers
A heat pump boiler uses electricity to extract heat from the air or ground to heat water. You can think of them as an upside-down refrigerator. While a refrigerator removes heat from within and releases it into the air, a heat pump water heater takes heat from the air (air source heat pumps) or from the ground (geothermal heat pumps) and uses it to heat your water. This method makes them very efficient and can significantly reduce energy costs, especially in temperate climates.
Solar boilers
However, there are other water heaters that can be even more energy efficient, such as solar water heaters. These heaters use solar panels to capture sunlight and convert it into energy for heat, which is then transferred to the water. These systems can provide significant savings on energy bills, especially in sunny regions, but typically have higher purchase prices and unique maintenance needs.
Point-of-use water heaters
Point-of-use water heater systems are small units that are usually installed close to the point of use, such as sinks or showers. They deliver hot water directly to where it is used, heating the water quickly. These systems are usually used as a supplement to larger systems.
Federal tax credit for water heaters
As you search for the right water heater for your home, consider the incentive programs available for your purchase. “There are federal and local incentives and credits available to homeowners when purchasing a new water heater,” Kunz said. “Each program and credit is based on the needs of different homeowners, so it is important to do your homework to find the incentive that best suits your needs to see if you qualify.”
There are two primary federal tax credits available to help cover the cost of your upgrade: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.
Credit for energy-efficient home improvements
The Credit for energy-efficient home improvements is part of the Inflation Reduction Act of 2022 and encourages homeowners to invest in energy efficient upgrades, including certain water heaters.
Eligible systems include electric water heaters with heat pumps, gas water heaters with a certain energy efficiency class and more. Homeowners can claim a tax credit of up to 30% of costs, with a maximum credit limit of $1,200 per year, and up to $2,000 per year for qualified heat pumps. Eligible heat pumps must meet or exceed the requirements The highest efficiency level of the Consortium for Energy Efficiency.
This credit helps offset the initial costs of purchasing and installing qualified energy-efficient water heaters, making it an attractive option for people looking to improve the efficiency of their home. Credit can be claimed for home improvements made through 2032.
Residential Clean Energy Credit
The Residential Clean Energy Credit focuses specifically on renewable energy technologies, including geothermal heat pumps and solar boilers.
Homeowners can receive a tax credit of 30% of installation costs for qualified geothermal systems through 2032, with declining credit rates still available in subsequent years. Unlike the Energy Efficient Home Improvement Loan, this credit has no maximum limit, meaning homeowners can potentially benefit significantly based on total installation costs.
Other rebates and incentives for water heaters
In addition to federal tax credits, other incentives may be available to you depending on where you live. To find information about incentives offered by the state, municipality, or utility companies for energy efficient water heaters, homeowners can start by visiting government websites, especially those of state energy offices or energy departments, which typically provide information about available incentives and programs. Also check your utility company’s website for possible rebates and incentives for energy-efficient appliances.
Other rebates approved and funded by the IRA are implemented by individual states. To see if your state has opened applications for rebates, visit this DOE database.
You can also search online incentive databases such as the Database of government incentives for renewable energy sources and efficiencythat aggregates incentives at the state and local level and allows you to search by location and technology. Please note that the database may not be complete and the programs listed may have changed, but it is a good starting point.
