Tankless Water Heater Rebates & Tax Credits (2025): What You Can Actually Get Back

If you’ve been thinking about upgrading to a tankless water heater, now might be the perfect time to take the plunge. Not only will you enjoy endless hot water and lower energy bills, but you may also qualify for a generous tax rebate to help offset the upfront cost.

In case you didn’t know, the U.S. government offers tax INCENTIVES to encourage energy-efficient home upgrades every year, especially as we shift toward a more sustainable, eco-conscious future. These rebates are designed to make it EASIER and more AFFORDABLE to improve your home while reducing your environmental impact. And switching to an on-demand tankless water heater checks all the right boxes.

If this sounds too good to be true, let’s walk through the details together. Going tankless in 2025 doesn’t just save water and energy—it might also put some money back in your pocket.

Tankless Water Heater Rebate 2025

If you’ve just installed a brand-new tankless water heater—nice move. You’re already set up for better efficiency and a steady supply of hot water. But here’s something you might not know: you could also qualify for some decent federal or local tax rebates.

These programs aren’t all the same. Each one comes with its own set of rules and requirements, so it’s worth taking the time to find the one that fits your situation. And if things start to get a little murky, don’t hesitate to bring in your TAX CONSULTANT. They’ll help you sort through the fine print and make sure you’re getting everything you’re entitled to.

However, it’s not as complicated as it might seem at first. When I applied for the first time, I felt overwhelmed too. But once I got the hang of the process and understood the details, I quickly saw just how worthwhile it really is.

So, let’s get into the good stuff—REBATES available in 2025. Tankless (or on-demand) water heaters may qualify for tax credits under the following programs:

Federal Income Tax Rebates

The Energy Efficient Home Improvement Credit (25C)—part of the Inflation Reduction Act of 2022—covers qualifying tankless water heaters installed between January 1, 2023, and December 31, 2032. The goal here is to encourage energy-efficient upgrades by offering tax credits for SELECT models of gas tank-free heaters and electric heat pump geysers (read comparison) that meet or exceed specific energy efficiency standards.

So, What Exactly Are These Annual Limits?

• A total of $1,200 per year for general home improvements, including:
  • Electrical upgrades
  • Insulation
  • Energy-efficient windows, skylights, and doors
  • Central air conditioning
  • Boilers and furnaces
• A separate $2,000 annual limit for:
  • Heat pump water heaters
  • Heat pumps
  • Biomass stoves or boilers

NOTE: Energy Star-certified geothermal heat pumps are treated under a different tax credit category and are not subject to these annual limits.

Tankless Water Heater Credit Limit

If you’re installing an instantaneous heater, the maximum you can claim is $600—that’s 30% of the total cost, provided the unit meets or exceeds Energy Star efficiency ratings. This cap applies specifically to propane, natural gas, or oil-powered models.

This tax credit is non-refundable. That means it can reduce the amount of federal income tax you owe, but it won’t result in a refund if you don’t owe any taxes that year.

What’s NEW For 2025?

Starting in 2025, the IRS will require manufacturers of qualified tankless water heaters to assign a Product Identification Number (PIN) to every eligible product. This is part of an effort to improve tracking and accuracy in claims.

• For tax year 2025:
  • You’ll need to report the manufacturer’s 4-digit Qualified Manufacturer (QM) code when filing your tax return.
  • The PIN itself is optional in this transition year.
• Starting January 2026:
  • The PIN becomes mandatory for claiming the credit. You’ll need to include it with your tax filing to receive the rebate.

You can find out more about the energy efficiency tax credit on evergystar.gov.

Local Income Tax Rebates

While the federal government offers strong incentives, don’t overlook what’s available closer to home. Depending on where you live, you might be eligible for state-level tax credits and utility company rebates that can make your tankless water geyser upgrade even more affordable.

State Incentives

In addition to the federal tax credits we covered above, many states offer their own rebate programs for energy-efficient home upgrades, including tank-free water heaters. These programs VARY quite a bit depending on your location. The eligibility requirements, reimbursement amounts, and qualifying equipment standards can all differ.

The best place to start? Your State Energy Office. They can point you to the most up-to-date and relevant programs for your area.

Utility Company Rebates

It’s not just the government offering incentives—local utility companies often pitch in as well. Many gas and electric providers offer incentives when you install a high-efficiency tankless water heater, and in some cases, the savings apply at the time of purchase or installation, giving you instant financial relief.

Just like with state programs, these rebates come with their OWN requirements. You may need to:

Use a licensed contractor for the installation.

Choose a specific model that meets the utility provider’s energy efficiency standards.

Submit documentation within a certain timeframe.

EXAMPLE: In Southern California, the local natural gas utility offers rebates for eligible tankless models—but only if you hire a licensed contractor and select a unit that meets their published efficiency specs.

Stay Up To Date

Rebate programs can change from year to year, sometimes even mid-year. To avoid missing out, I recommend checking the websites of your state’s energy department and your local utility provider for the latest details on:

• Deadlines and paperwork
• Available programs
• Approved products

Which Water Heaters Are Eligible For The Tax Credit?

As you might’ve noticed, I’ve mentioned a couple of times that only certain high-efficiency tankless water heaters qualify for tax rebates. That means we need to pick a unit that not only meets our hot water and energy-saving needs, but also checks the boxes for federal tax credit eligibility.

So, the natural next question is: which models actually qualify?

Energy Star Certification Is A Must

To be eligible for federal tax credits, your on-demand water heater MUST be Energy Star certified. But that’s not all—the unit also has to meet specific performance thresholds, based on the type of heater:

• Gas tankless models must have a Uniform Energy Factor (UEF) of 0.95 or higher
• Electric tank-free models must have a UEF of 2.2 or higher

Also, it’s important to point out: only brand-new units qualify. That means the water heating unit must be newly purchased and installed—previously used or secondhand models don’t count toward the rebate.

Now that we’ve covered the criteria, let’s take a look at a few example models from TRUSTED BRANDS that meet these requirements and qualify for the 25C federal tax credit.

Model	UEF	Powered By
Rinnai SENSEI™ RU199iN	0.95	Natural gas
Rheem Performance Series RETEX-8	0.96	Electricity
Rinnai SENSEI™ RX199iN	0.98	Natural gas / Propane
Navien NPE-240S2	0.96	Natural gas / Propane
Noritz NRCR92DV	0.96	Natural gas
Bosch Greentherm 9000	0.95	Natural gas

As you can see, all of these tankless water heater models come with a UEF rating of 0.95 or higher, which means they’re eligible for the federal tax rebates we’ve been talking about. One big advantage of sticking with well-known brands is peace of mind—you’re choosing models that meet strict QUALITY and SAFETY standards and are ENERGY STAR certified across the board.

Step-By-Step Guide To Claim Tax Credits

Let’s be honest—this part can feel a little overwhelming. Once your brand-new tankless water heater is up and running, figuring out how to actually claim the tax credit is where things get tricky. But before we jump into the steps, let’s quickly review the eligibility criteria, so you can be sure you qualify.

Are You Eligible? Check These First

To qualify for the Energy Efficient Home Improvement Credit, homeowners (or tenants, in some cases) need to meet the following conditions:

Installed In A U.S. Residence: You should install the tankless water heater in your existing residence that is in the USA; it cannot be a home you have newly developed. This can include your secondary home, as well as rental properties where the taxpaying tenant carries out eligible high-efficiency home improvements.  

First-Time Installation: The tank-free heater must be a brand-new unit you have recently installed for the first time or are about to install. You cannot claim rebates on a replacement model for an existing unit.

Energy Star Rating: As we have already discussed, the tankless model must be Energy Star certified and be equal to or higher than the specified UEF value.

Home Energy Audits: You can also claim tax rebates of up to $150 under the Energy Efficiency Home Improvement Credit program for a home energy audit, which helps us identify the most cost-effective yet beneficial energy efficiency upgrades for our homes.

However, your home must be located in the USA and be your PRIMARY residence. If you have a second home, it will not qualify for tax benefits, but taxpaying tenants might be eligible if they carry out eligible energy upgrades.

For state and utility-level incentives, I recommend visiting the respective official websites for the latest guidelines, as these can vary widely from place to place and are often updated periodically. I would say this is the best way to ensure we do not overlook any clauses and can derive the maximum tax benefits.

Claiming Federal Tax Rebates (My Step-by-Step Guide)

Alright, so you’ve installed your tankless water heater—high five for that. Now comes the less exciting, but super important part: CLAIMING your federal tax credit.

Let me walk you through this based on what I’ve seen with homeowners I’ve helped, and what I’ve done for my own installs. I promise it’s not as intimidating as it sounds once you know the steps.

And hey, don’t forget: you can only claim the rebate for the tax year the unit was installed. Not just when you bought it. That catches a lot of people off guard.

A. For Tankless Water Heater Installations

Step 1: Fill Out IRS Form 5695

Start by completing IRS Form 5695 – Residential Energy Credits. This is the form that makes your claim official.

• Head to Part II for non-solar improvements.
• Select “qualified natural gas, propane, or oil water heater” or related option.
• Enter your total cost (including installation if applicable).
• Then calculate your credit—30% of the total cost, capped at $600.

TIP: Be precise. Don’t guesstimate the Uniform Energy Factor (UEF)—check your heater’s documentation or look it up on the manufacturer’s site. This stuff matters. I also recommend reading the guidelines to fill up the Form 5695.

Step 2: Attach Form 5695 To Your 1040 Tax Return

When you’re ready to file taxes for that year, just attach Form 5695 to your Form 1040 (your main federal income tax return). If you use tax software, most of them walk you through it. Just make sure you answer the energy-efficiency upgrade questions correctly.

Step 3: Gather And Save Your Documents

Even though you don’t submit these documents with your return, you absolutely need to keep them in a SAFE place—especially if the IRS ever audits your claim (yep, it happens). Hold on to:

• Product receipts
• Installation invoices
• Manufacturer’s certification
• Energy Star label or UEF rating proof
• QM code (found on the unit or from the manufacturer)

TIP: Create a digital folder right after you install the tankless heater—snap pics of every label, receipt, and invoice relating your water heater. That way, you’re not scrambling if you ever get that dreaded IRS letter.

Step 4: Know What’s Coming In 2026

For 2025, the IRS is requiring a Qualified Manufacturer (QM) code on the unit. You’ll need to include this when you claim your credit.

Starting January 2026, you’ll need to include a Product Identification Number (PIN)—a unique ID provided by the manufacturer. Keep an eye out for it when you buy your unit.

B. For Home Energy Audits (Optional Add-On)

If you’ve also done a home energy audit, good move. You can get up to $150 back under the same tax credit program. Here’s how to claim it:

1. Complete The Audit

Hire a Qualified Home Energy Auditor for your tankless water heater—make sure they meet the IRS-approved certification standards. This part’s not just about savings—it actually helps you spot where your home is bleeding energy.

2. Collect Your Documentation

Get everything in writing:

• Auditor’s full name.
• EIN (Employer Identification Number) or equivalent.
• Certification details (name of the program + proof that the auditor is certified).
• A signed copy of the audit report.

I’ve seen the IRS deny claims when even small things are missing. Triple-check before you file.

3. File Using the Same Form

Yup, Form 5695 again. Just add the energy audit cost to the relevant section, and file it with your Form 1040.

I’ve helped many people claim this rebate with tankless water heaters—from single moms in starter homes to older couples swapping out aging heaters. It’s DOABLE. Just take it one step at a time, keep your documents tight, and don’t rush through the forms.

You made the smart call upgrading your water heating unit—now let’s make sure Uncle Sam gives you your share back! 😄 Let me know if you want a printable checklist or example form—I’ll put something together for you.

C. Claiming Local Tax Rebates

If you’re already going after federal tax credits, don’t leave money on the table—local tax rebates can sweeten the deal even more.

Start by checking with your state energy office or local utility provider. Most utility-level reimbursements are straightforward to apply for, but the details can vary quite a bit depending on where you live and who supplies your energy to the tankless water heater.

Typically, you’ll need to submit an online application and provide documents like your PROOF OF PURCHASE, INSTALLATION RECEIPTS, and sometimes even the MODEL NUMBER to show your unit meets their efficiency standards.

Deadlines matter, so keep an eye out. Rebate windows can close quickly, and local policies do change from time to time—what qualifies today might not qualify next quarter. This is not only applicable to the U.S., but other countries as well.

Here’s something I always tell folks from my own experience: if you’re unsure about the paperwork or rules, talk to a tax consultant or someone who understands these incentives well. They can save you time, avoid headaches, and make sure you get everything you deserve.

How Can You Maximize Tax Credits?

Look, I’ve been through the process myself, and I know tax rebates can feel like a maze. But trust me, with a little PLANNING, you can really make those credits work in your favor. If you’ve just installed a tankless water heater—or any other Energy Star–rated upgrade—here’s how to get the most out of those savings.

Start With A Home Energy Audit

Before you dive into upgrades, I always recommend getting a home energy audit. It’s like getting a full check-up for your house. You’ll find out exactly where you’re wasting energy and which improvements will save you the most money long-term.

Plus, you can claim up to $150 back on the audit itself—just make sure you hire a certified auditor who’s qualified, not just some random guy. You can estimate your energy costs here.

Combine Upgrades In The Same Year

One thing I learned is that combining projects in the same year can really add up.

For example, after your audit, maybe you decide to upgrade your attic insulation or swap out old windows for Energy Star–certified ones. You can claim credits for all of those in the same tax year. So, you might get $150 back for the audit and up to $1,200 for insulation—that’s a SOLID chunk of change coming back to you.

Spread Out Larger Projects Over Multiple Years

If you’re planning several upgrades with your tankless water heater, don’t feel like you have to do it all at once. Those yearly limits on tax credits are there for a reason, and spreading your projects out over a few years lets you squeeze the MOST BENEFIT out of each. I’ve helped customers plan this out, and it really makes a difference.

Don’t Forget State And Local Rebates

On top of federal credits, your state and local utilities probably have their own rebate programs. These often change, so keep an eye on their websites. It might feel like extra work, but those reimbursements can really stack up and boost your savings.

Hire Qualified Professionals

I can’t stress this enough: get pros to install your tankless water geyser. It’s safer, done right, and often required to qualify for rebates, especially local ones. Plus, if the PAPERWORK or TAX FORMS start to feel overwhelming, bring in a tax professional who knows this stuff inside and out. It’s worth the peace of mind.

Making Every Tax Credit Count With Your Tankless Heater

Look, upgrading to a tank-free instant water heater isn’t just some fancy new gadget — it’s a solid investment. You’re not only cutting down on your energy bills over time, but you’re also doing your part to reduce waste and run your home smarter.

And with the federal tax credits, state rebates, and utility savings available now, it really makes sense to TAKE ADVANTAGE while you can.

But here’s the thing: these rebate programs come with their own fine print. You’ve got to take the time to understand what fits your situation, keep your paperwork tight, and watch those deadlines like a hawk. And if tax forms start to feel like a puzzle, don’t hesitate to ask me. It’ll save you a ton of headaches.

At the end of the day, going tankless isn’t just good for the planet—it’s a SMART move that can bring real, measurable savings and comfort to your home. Plan it right, do your homework, and enjoy the benefits of an efficient water heater that works hard without wasting energy.