Due to the ongoing energy crises and the need for energy-efficient products, certain incentives are often made available for the purchase of tankless water heaters . These incentives may come in the form of tax credits, rebates, or even both. You may want to check with your local utility or gas company, as many are offering attractive tankless water heater rebates. Additional tax credits are made available via the federal government. We’ll try to keep you updated federally.
UPDATE: The $300 federal tax credit ended as of December 31, 2007. We are patiently awaiting reinstatement, but as of now there is no tax credit available for 2008.
As a result of the Energy Policy Act of 2005, homeowners can get a tax credit of up to $3001 , when purchasing a highly efficient water heater (2006-2007). Only some tankless water heaters currently qualify, however. Before you rush out and buy that fancy new electric tankless water heater , you’ll want to make sure it qualifies for the tax credit. In order to qualify for the tankless water heater tax credit, the following criteria must be met:
- Natural gas, propane, or oil water heaters must have an energy factor (EF) of .80, or above. This is over 33 percent more efficient than the current federal standard.
- Electric heat pump water heaters must have an EF of at least 2.0. This is over twice as efficient as the current federal standard.
How to Get it?
For a partial list of qualifying products go to the Gas Appliance Manufacturing Association
- Manufacturer’s Certification Statement required2 .
- For tax purposes, save your receipt and the Manufacturer’s Certification Statement.
- Use IRS Form 5695
- Expires December 31, 2007.
How Does a Tax Credit Work?
A tax credit shouldn’t be confused with an instant rebate. Unlike an instant rebate, you don’t receive a tax credit at the time you purchase a tankless water heater. A tax credit is claimed on your federal income tax form when you file your taxes. Subsequently, this reduces the amount of income taxes you have to pay. This is superior to a deduction, as a tax credit is a direct reduction of taxes you owe, rather than the lowering of your taxable income, as is the case in a deduction. It’s always advisable to consult a tax advisor for further guidance.
1 Subject to a $500 maximum per homeowner for all improvements combined.
2 Manufacturer’s Certification is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. The IRS encourages manufacturers to provide these Certifications on their website to facilitate identification of qualified products. Taxpayers must keep a copy of the certification statement for their records, but do not have to submit a copy with their tax return.