Get a Federal Tax Credit for Tankless Water Heaters – With Help from Betts Designs & Renovations
- Aaron Betts
- 1 day ago
- 6 min read
If you’ve been thinking about upgrading your hot water heater in the Raleigh–Durham–Pinehurst area, now is the time to move. Thanks to a federal Energy Efficient Home Improvement Credit (also known as the "25C credit"), many homeowners can get money back at tax time for installing qualifying high-efficiency gas tankless (“on-demand”) water heaters and certain heat pump water heaters.
At Betts Designs and Renovations, we help homeowners from Pinehurst to Raleigh, Durham, Garner, Apex, and surrounding communities choose eligible equipment, coordinate installation, and prepare the documentation you’ll need so your tax professional can help you claim this credit correctly.
What Is This Hot Water Heater Tax Credit?
The current federal program is called the Energy Efficient Home Improvement Credit under Internal Revenue Code section 25C.
According to the IRS, if you make qualifying energy-efficient improvements to your existing primary home in the U.S. after January 1, 2023, you may be able to claim a 30% tax credit on certain costs, up to annual dollar limits, for improvements installed through December 31, 2025.
For water heaters, there are two big pieces:
Efficient gas tankless (on-demand) water heaters
Must meet ENERGY STAR and high-efficiency requirements (for gas tankless, that generally means a Uniform Energy Factor (UEF) of ≥ 0.95).
You can get 30% of the project cost back, up to $600. Project cost may include the unit and installation when it qualifies as “residential energy property.”
Electric or natural gas heat pump water heaters
Must meet the highest efficiency tier set by the Consortium for Energy Efficiency (CEE) and ENERGY STAR.
These fall under a separate $2,000 per-year cap for heat pumps, heat pump water heaters, and biomass equipment.
There’s also an overall cap: up to $3,200 per year in combined 25C credits ($1,200 for items like doors/windows/standard HVAC + $2,000 for qualifying heat pumps and heat pump water heaters).
Is This Really Legit?
Yes. This credit is part of federal tax law and is spelled out on the official IRS “Energy Efficient Home Improvement Credit” page and IRS Form 5695 (Residential Energy Credits), which is the form used to claim it.
In plain language:
The IRS confirms you can claim up to $3,200 per year for eligible home energy upgrades, including up to $2,000 for qualifying heat pumps and heat pump water heaters and up to $600 for qualifying natural-gas/propane/oil water heaters like tankless units that meet the efficiency rules.
To claim it, you (or your tax preparer) file Form 5695 with your federal tax return for the year the equipment was installed, not just purchased.
Several major water heater manufacturers—including Rinnai—promote this same credit for their qualifying tankless water heaters. Their documentation explains that qualifying models (for example, gas tankless units with Energy Factor/UEF ≥ 0.95) may be eligible for federal tax credits under section 25C.
Important note on dates:
Originally, the 25C program was designed to run annually from 2023 through 2032, and many manufacturer marketing pages (including Rinnai) still display those dates. However, as of late 2025, the IRS now states that the Energy Efficient Home Improvement Credit is available for improvements installed on or after January 1, 2023, and before December 31, 2025, and recent tax news outlets highlight that these credits are currently set to expire after 2025 unless Congress extends them again.
Because tax law can change, always confirm the latest rules with a qualified tax professional.
How Tankless “Flash” Gas Water Heaters Fit In
The “flash” or “speed” hot water heaters you’re thinking of are generally called tankless or on-demand water heaters. Instead of keeping a big tank of water hot all the time, they heat water only when you open a tap.
For qualifying gas tankless water heaters:
They must be new, not used.
They must be installed in an existing home (not brand-new construction) that is your primary residence in the U.S.
They must meet or exceed the CEE highest efficiency tier, which for gas tankless typically translates to ENERGY STAR certified with UEF ≥ 0.95.
When these conditions are met, the federal tax credit can cover 30% of the project cost up to $600 for the water heater portion.
Rinnai and similar brands offer many models that meet these performance levels. Their federal tax credit pages explain that high-efficiency tankless units can qualify for up to $2,000 under the original 25C limits, but your actual yearly limit for gas water heaters is currently governed by the IRS caps described above—so we always design around current IRS guidance first and use manufacturer documentation as supporting evidence.
Extra Rebates for North Carolina Homeowners
On top of the federal tax credit, many North Carolina homeowners may be eligible for state and utility rebates:
NC energy rebate programs funded through the Inflation Reduction Act plan incentives for efficient upgrades like heat pump water heaters, electrical panel updates, and insulation. Some program summaries reference rebates of up to $1,750 for qualifying heat pump water heaters and higher totals when combined with other improvements.
Duke Energy has offered rebates (for eligible customers) of $500–$800 for qualifying ENERGY STAR hybrid/heat pump water heaters, depending on tank size and efficiency.
Programs can vary by utility, income level, and timing, so part of what Betts Designs and Renovations does is help you:
Identify which incentives you can realistically qualify for,
Plan your project so that installation is completed before key deadlines, and
Make sure you have the proper paperwork (invoices, model numbers, manufacturer certificates) for your tax preparer or rebate application.
Who Qualifies for the Federal Water Heater Credit?
You may qualify if:
The home is located in the United States,
It’s an existing home (not new construction),
It’s generally your primary residence, and
The equipment was placed in service (installed) between January 1, 2023 and December 31, 2025 under current IRS rules.
You cannot claim the credit:
For a home you use entirely as a rental or business property,
For equipment that doesn’t meet efficiency requirements,
For used units or DIY installations that don’t comply with manufacturer and code requirements.
If you use part of your home for business (for example, a home office), the credit might be prorated, depending on how much of the home is personal vs. business use.
How to Claim the Tankless Water Heater Tax Credit
Here’s the basic process, simplified:
Choose qualifying equipment
Betts Designs and Renovations will help you select Rinnai or other qualifying tankless and heat pump water heaters that meet the ENERGY STAR / CEE efficiency requirements and fit your home’s plumbing, gas, and electrical layout.
Get professional installation
We handle the installation, permits, and code compliance for homes in Pinehurst, Southern Pines, Sanford, Raleigh, Durham, Cary, Apex, Garner, Holly Springs, and nearby areas.
Keep your documentation
You should receive:
A detailed invoice listing the equipment and labor,
The model number of your water heater,
Any manufacturer’s tax credit certificate or statement showing eligibility (for example, from Rinnai’s federal tax credit documentation),
Proof of payment and date of installation.
File IRS Form 5695 with your tax return
When you file your taxes for the year your heater was installed, your tax preparer (or tax software) will use Form 5695, Residential Energy Credits to calculate and claim your 25C credit.
We are not CPAs or tax attorneys. Betts Designs and Renovations will help you gather the right project details and manufacturer documentation, but you should always confirm your eligibility and final numbers with a licensed tax professional or trusted tax software, using the latest IRS guidance.
Why Work with Betts Designs & Renovations for Your Hot Water Upgrade?
Upgrading a water heater isn’t just about swapping a box in a closet. It touches plumbing, gas lines, venting, electrical systems, and future remodeling plans.
When you partner with Betts Designs and Renovations:
We look at your whole home – kitchen, bathrooms, laundry, and renovation plans – to decide whether gas tankless, heat pump water heaters, or a combination makes the most sense.
We coordinate permits, inspections, and code-compliant installation in cities and towns from Pinehurst to Raleigh, Durham, Garner, Apex, and the surrounding Triangle and Sandhills communities.
We help you match specific models (such as qualifying Rinnai tankless heaters) to the current federal standards so you aren’t leaving money on the table.
We provide the kind of detailed paperwork that makes life easier for your CPA or tax software when they fill out Form 5695.
Ready to Capture Your Tankless Water Heater Tax Credit?
If you’re in or between Pinehurst and the Raleigh–Durham area and you’re tired of running out of hot water or paying too much to keep it hot all day, this is your chance to upgrade and get a tax break at the same time.
Contact Betts Designs and Renovations today to:
Confirm whether your home is a good fit for a high-efficiency gas tankless water heater or heat pump water heater,
Line up installation before current federal credits expire, and
Make sure your project is documented properly so you can talk with your tax professional about claiming the Energy Efficient Home Improvement Credit.
Call, text, or message Betts Designs and Renovations today to schedule a consultation and start designing a smarter hot water system for your North Carolina home.
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