The Inflation Reduction Act (IRA) of 2022 created a 30% federal tax credit for qualifying heat pump water heaters under Section 25C — up to $2,000 per year. This single incentive has reshaped the residential water heater purchase decision toward heat pump electric. State and utility rebates frequently stack on top, sometimes netting heat pump installs below standard tank pricing.
The basics
- 30% of installed cost, up to $2,000 per year
- Section 25C of the Internal Revenue Code
- Available 2023-2032 at current levels
- Heat pump water heaters only (resistance electric tanks and gas tankless don\'t qualify)
- Must be Energy Star certified — verify on energystar.gov
- Primary residence — second home eligible at reduced rates
Eligible heat pump water heaters
| Brand | Model | UEF | Energy Star certified |
|---|---|---|---|
| Rheem ProTerra | 50/65/80-gal | 4.0 | Yes |
| AO Smith Voltex | 50/66/80-gal | 3.45 | Yes |
| State Premier Hybrid | 50/66/80-gal | 3.45 | Yes |
| Stiebel Eltron Accelera 300 E | 80-gal | 4.5 | Yes |
| Westinghouse Heat Pump | 50/80-gal | 3.55 | Yes |
| Lochinvar AWHP | 50/66/80-gal | 4.0 | Yes |
| Reliance Hybrid HPHE | 50/66-gal | 3.45 | Yes |
| Bradford White AeroTherm | 50/66/80-gal | 3.5+ | Yes |
Always verify the specific model and year on energystar.gov before purchase.
What counts toward the 30%
- Heat pump water heater unit cost
- Professional installation labor
- Required ancillary equipment: condensate pump, drain pan, electrical work specifically for the HPWH
- Permit fees
What doesn\'t count
- Disposal of old water heater
- Unrelated plumbing work
- Service panel upgrades not specifically for HPWH (unless documented)
- State sales tax (varies)
State and utility stacking
Many states and utilities stack additional rebates on top of the federal 30%:
| State / Utility | Additional rebate (typical) |
|---|---|
| California (TECH Clean California) | $1,000-3,800 (income-tiered) |
| Massachusetts (Mass Save) | $750-2,000 |
| New York (NYSERDA) | $700-1,000 |
| New Jersey (NJ Clean Energy) | $700-1,500 |
| Oregon (Energy Trust) | $500-1,500 |
| Vermont (Efficiency Vermont) | $500-1,500 |
| Washington (utility-dependent) | $500-1,200 |
| Northeast Utilities Council programs | $300-800 |
Stacking example: $2,500 HPWH installed in California with $1,500 state rebate + 30% federal of remaining $1,000 = $300 net out of pocket.
HEEHRA (separate program) — even bigger savings for income-qualified
The IRA also created HEEHRA (Home Electrification and Appliance Rebates) for income-qualified households:
- Up to $1,750 rebate on heat pump water heater
- For households at or below 150% of area median income
- Implemented state-by-state — check your state\'s energy office
- Can stack with federal 25C credit and state rebates
How to claim Section 25C
- Keep all receipts (unit, install labor, permit)
- Verify Energy Star certification of the specific model purchased
- File IRS Form 5695 with your federal tax return
- Claim 30% up to $2,000 line
- Non-refundable credit — reduces tax owed but doesn\'t exceed tax liability
- Unused credit DOESN\'T carry forward in Section 25C (unlike solar 25D)
What about resistance electric or gas?
- Standard electric tank: NOT eligible (no heat pump = no credit)
- Gas tankless: NOT eligible under 25C (some natural gas tankless qualified under prior rules but excluded under IRA)
- Gas tank: NOT eligible
- Solar thermal: Eligible under 25D (different program, 30% no cap)
The economic math
The IRA credit + state stacks have flipped HPWH economics. Typical 50-gallon:
- Rheem ProTerra 50-gal installed: $2,500
- Federal 30% credit: -$750
- State rebate (varies): -$0 to -$1,500
- Net cost: $250-$1,750
Compare to mainstream electric tank ~$1,100 installed. HPWH net cost is now often comparable or cheaper, plus $290-470/year operating savings forever.
Bottom line
If you\'re replacing an electric water heater and your install location supports HPWH (700+ cu ft air space, ambient 45-95°F), the IRA + state stack makes heat pump the clear best-economics choice. File Form 5695 with your taxes. Verify Energy Star eligibility before purchase. Check state and utility programs at energystar.gov/about/state-energy-efficiency-rebate-programs.