Green Door Guide to Heat Pump Water Heater Rebates and Tax Credits

Considering switching to a heat pump water heater (HPWH)? It’s a smart move that comes with clear benefits, not least of which are improving your home’s energy performance and increasing its value. Of course, you might also be concerned about the up-front cost of converting.

In this article, we’ll break down everything you need to know, including how rebates included in the recently passed 2022 Inflation Reduction Act (IRA) could incentivize your decision.

What Are HPHWs — and What Are Their Benefits?

You might think of HPWHs as operating like refrigerators in reverse. Refrigerators remove heat from an enclosed box and expel it into the surrounding air (notice that the metal pipes on the back of your refrigerator are probably warm to the touch). HPWHs, by contrast, pull heat from the surrounding air and transfer it in order to heat water in an enclosed tank.

Unlike conventional electric resistance water heaters, what’s more, HPHWs don’t generate heat directly. Instead, they use electricity to move heat from one place to another. As a result, they can be two to three times more energy efficient than conventional electric resistance water heaters. For a household of four, switching from a standard electric water heater to an HPHW translates to as much as $470 less per year on the electric bill.

Related Post: What's a Heat Pump Water Heater?

How Much Does Converting Cost?

It’s hard to give an exact answer, as there are many different models of HPHWs on the market, ranging in cost from around $1,000 to $3,000 or more. On top of that, the cost of installation will likely vary based on a number of factors, including:

• The size of your HPHW

• Where in your home you’re installing the HPHW

• Whether there are material changes, or debris to remove, prior to installation

• The contractor you decide to work with

But the good news is that a combination of federal, state, and utility rebates, together with federal and state tax credits, can significantly decrease the cost of your conversion. Let's look at that in a little bit more detail.

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How Rebates and Tax Credits Can Offset the Cost of Converting to Heat Pump Water Heaters

If you earn less than 150% of the median household income in your area, you should be eligible for a rebate under the terms of the IRA. Just note that “area” could mean your ZIP code, your county, or even the state in which you reside. That’s going to be determined on a state-by-state basis.

Here’s a breakdown of how the IRA rebates, which are slated to become available late in 2023 or early in 2024, apply to your HPHW conversion:

• If you earn up to 80% of the median household income in your area, you’re eligible to receive up to 100% of the cost of your HPHW purchase up to $1,750.

• If you earn more than 80% but less than 150% of the median household income in your area, you’re eligible to receive 50% of the cost of your HPHW purchase. To claim the maximum rebate of $1,750, in other words, the cost of your HPHW would have to be $3,500 or higher.

• If you earn more than 150% of the median household income in your area, you aren’t eligible for a rebate, unfortunately.

Additionally, a $500 rebate is available to pay for contractors and offset the cost of HPHW installation — and all of these rebates can be stacked with existing tax credits. Most notably, for HPHWs purchased and installed between January 1, 2023 and December 31, 2032, you can claim a tax credit of 30% of the project’s cost up to $2,000. Note, however, that only HPHWs that have earned ENERGY STAR^® rating are eligible for this credit. You’ll also need to be making the conversion at a location that counts as your existing home and principal residence — new constructions and rentals aren’t eligible.

Related Post: Is a Heat Pump Right for Your Home?

How to Apply for Rebates and Tax Credits

First, download the Green Door app from Pearl Certification — the Rebate Finder will connect you with links to each HPWH rebate or tax program you’re eligible for based on your location. Each tax season, you’ll also find important information about applying for tax credits within the “Documents” section, which you can easily share with your tax professional if you need additional guidance applying for credits.

Plus, while you’re there, the app can generate a customized Home Investment Plan that can help you work toward earning a Pearl Certification. It can also put you in touch with local, vetted contractors and help comprehensively capture the value of your new asset, as well as your home.