Water Heaters
Credit Available 30% of total cost (materials & labor)
$1,500 maximum for all improvements combined
Timeline Must be "placed in service" (ready and available for use)
Jan. 1, 2009 – Dec. 31, 2010
Water Heaters Gas, Oil, Propane: Energy Factor >= 0.82 or a minimum thermal efficiency of 90%
As of May 31, 2009, there are no Energy Star gas storage tanks or gas condensing water heaters that qualify for tax credits
Electric Heat Pump Water Heaters Energy Factor >= 2.0 (same as Energy Star)
See summary chart: Stimulus at a Glance

In many homes frequent and liberal hot water use is essential, but reducing energy consumption is becoming a priority. Homeowners who want to upgrade equipment when those paths cross will have several tax credit–friendly options available.

Going Shopping

Tankless units are likely lead water heater retrofits, simply by virtue of availability. Few gas storage tank or condensing water heaters on the market currently qualify for tax credits. “Most tankless models qualify, but few manufacturers have a conventional-style product that qualifies,” says David Chisolm, brand manager for AO Smith. The company is one that does offer a residential storage-type water heater that meets the legislation’s thermal efficiency requirements.

But demand drives innovation. Some manufacturers expect new products to be designed with the tax credits in mind. Representatives from Rheem add that possible legislative amendments could lower the 0.82 energy factor requirement to 0.8, broadening the range of eligible products.

Regarding present tankless supply, “inventory is definitely high enough to meet current demands,” say representatives from Takagi. “The industry as a whole anticipates demand will increase 3% to 10% in the next year.”

The heat pump water heater segment is also likely to grow. Of approximately 50 million water heaters in the U.S., Nyle Corp. president Don Lewis estimates that fewer than 10,000 are heat pump water heaters. The company has licensed with North Road Technologies to manufacture these units, which work with existing storage water heaters by harvesting heat from the air to directly heat water. Manufacturers say that heat pump water heaters can reduce the hot water portion of utility bills by 50% to 80%.

“The market share for heat pump water heaters today is extremely small,” says Rob Montenegro, vice president of sales for North Road Technologies, “but with the tax credit opportunities, I believe growth in the market will be exponential.” Manufacturers, including Rheem, plan to capitalize on this segment with heat pump water heater introductions.

Spreading Word

While upgrade opportunities abound, phone calls by REMODELING to a sampling of water heater installers yielded few companies that are proactively educating their clients.

One business owner making a move is Beth Rovazzini, president of B&W Plumbing, Heating, & Air Conditioning, in Indianapolis. Rovazzini has conducted seminars to educate homeowners about the tax credits. “We need to help customers make sure they’re choosing the right equipment for their needs, and not just buying something because they get a tax credit,” she says.

So far this year, B&W has sold five tax credit–eligible water heaters, which surprises Rovazzini. “Most families will probably need a 50-gallon storage water heater that costs $800,” she says, noting that the high-efficiency models are more expensive. “While they’re saving energy, and the tax credits and utility incentives will offset some of the expense, they need to decide if that initial cost is worth it for their situation.”

Regardless of what her customers decide, Rovazzini says that tax credit availability has started a conversation about efficient water heating, and that keeps the phone ringing. —Lauren Hunter, associate editor, REMODELING.


Natural gas, propane, or oil residential water heaters with an energy factor of at least 0.82 qualify (higher is better). Some units may alternatively be measured by thermal efficiency, which must be at least 90% to qualify. These requirements apply to storage-style or tankless heaters. Electric heat pump water heaters with an energy factor of 2 or higher are also eligible. Homeowners can claim the standard tax credit and recoup 30% of the cost, including labor, up to $1,500.

Doing It Right: Measuring Efficiency

While many storage water heaters meet Energy Star’s 0.67 energy factor requirement, units must meet a higher energy factor of 0.82 to be tax credit–eligible. Currently, no Energy Star–rated storage water heaters meet that specification.

Some storage models do meet a different tax credit requirement of having 90% thermal efficiency. Energy Star does not give consideration to thermal efficiency, which is traditionally used to rate commercial units. Manufacturers stress that commercial water heaters should not be installed residentially, for safety reasons. According to the Consortium on Energy Efficiency, commercial units are not required to have flammable vapor ignition resistance (FVIR) features, which provide safety in residential settings.

That said, there do exist storage water heaters that are measured by thermal efficiency and that meet all necessary residential codes. Two models are in AO Smith’s Vertex line. “The technical definition of a ‘residential’ unit is a water heater operating at 75,000 BTU and below,” explains brand manager David Chisolm. “Our models in this category are over 75,000 BTUs, which is why they are rated with thermal efficiency instead of energy factor. However, they were designed specifically for residential applications, and meet all codes to be installed residentially.”

Chisolm adds that while the company’s Vertex products do not feature FVIR, neither do many tankless water heaters. Tankless units and others like the Vertex models use advanced heat exchangers that place them in different categories from traditional storage tank water heaters, and thus have different safety requirements.

For proper water heater installation, Ron Hunter, Rinnai’s vice president of sales and marketing, says that homeowners and remodelers should work with trained installers. “Equipment like tankless water heaters is still fairly new in the U.S., so you need to make sure you’re working with someone that’s familiar with it,” he says.

Venting is particularly important with installation, for functionality and cost reasons. Jack Banker, tankless product manager for Rheem, says that the stainless steel venting used with most tankless units often increases the cost. Homeowners will notice this increase when they compare it to tank models they see in stores, which cost less and use less expensive PVC for venting. Manufacturer Takagi plans to introduce an all-PVC tankless water heater that will cost less to install while maintaining desired efficiency. —Lauren Hunter

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