Plumbing and Mechanical

Water Heater Rebates & Tax Credits Explained

September 29, 2009
The state-run refund programs funded by the stimulus act for Energy Star-rated appliances, including water heaters, may not be available until after Thanksgiving. Read more to find out which water heaters are eligible for this rebate program, as well as federal tax credits.

There’s been some confusion as to the rebate program for Energy-Star-rated water heaters I wrote about for Plumbing & Mechanical’s September issue. I hope this blog will help clarify a few things for you - and your customers.

In mid-July of this year, the U.S. Department of Energy announced that it had nearly $300 million in funding from the American Recovery and Investment Act (the stimulus plan) for state-run rebate programs dealing with consumer purchases of Energy-Star-qualified appliances, including water heaters (storage tank and tankless).

Each state’s energy office had to apply for funding. An initial application was due on Aug. 15, with the full application due Oct. 15.

States and territories received 10 percent of the funds after submitting the initial application; the balance will be awarded after their program plans are approved. DOE anticipates awarding most of the funding by Nov. 30.

This means that, most likely, this rebate program will not be available in your state until after Thanksgiving. Also, states have the flexibility to select which residential Energy-Star-qualified appliances to include in their programs, as well as the individual rebate amount for each appliance - so Energy Star water heaters may not be covered in your state. However, the DOE recommends that states concentrate on heating and cooling equipment, appliances and water heaters as they offer the most energy-savings potential.

The best place to keep track of what water heater rebates may be available in your state is the online Database of State Incentives for Renewables and Efficiency  (DSIRE) - www.dsireusa.org.

As to which water heaters are Energy Star-rated, and thus eligible for the rebate, check out www.energystar.gov/waterheaters. At the right of the page are listed the five types of water heaters covered: high-efficiency gas storage (tank-type); gas condensing; whole-house gas tankless; solar; and heat pump. You can find eligible models under the Resources tab for each water heater type. (Gas condensing models eligible for Energy Star currently are not on the market; they should be available by the end of this year.)

Each type of water heater has its own energy-factor standard to become Energy Star-rated (the higher the energy factor (EF) is, the more efficient the water heater):

  • Gas storage - Energy factor must be at or above 0.62. Beginning Sept. 1, 2010, the minimum EF increases to 0.67.

  • Gas tankless - The EF must be at or above 0.82.

  • Solar - Must have a solar fraction at or above 0.5. (Solar fraction is similar to an energy factor.)

  • Heat pump - These models must attain an EF of at least 2.o or higher.

  • Gas condensing - Once these models are on the market, they must have an EF of 0.8 or above to be Energy Star-labeled.


Tax Credits

Now, the tax credits for water heaters are a different story. There are three types of water heaters covered by federal tax credits:

1. Gas, oil and propane water heaters. These must have an EF of 0.82 or above or a thermal efficiency of at least 90 percent. The tax credit is 30 percent of the cost, up to $1,500, including installation, in 2009 and 2010.

Most storage tank water heaters cannot qualify for the tax credit because they cannot meet the energy factor requirement. However, there are some storage tank water heaters that can qualify for the tax credit because they have a thermal efficiency of more than 90 percent; these models are larger than what is typically considered a residential unit.

For a partial list of tankless water heaters that qualify for the tax credit, go to the Air-Conditioning, Heating and Refrigeration Institute’s Web site at www.ahrinet.org.

2. Electric heat pump water heaters. Must have an EF of at least 2.0 to be covered. (All Energy Star-qualified models are eligible.) The tax credit is 30 percent of the cost, up to $1,500, including installation, in 2009 and 2010.

These are the only electric water heaters eligible for the tax credit.

3. Solar water heaters. These models are eligible for a tax credit if at least half of the energy generated comes from the sun. The system must be certified by the Solar Rating and Certification Corporation (www.solar-rating.org). All Energy Star-qualified models are eligible.

The tax credit is for 30 percent of the cost, including installation, with no upper limit, through 2016.

To claim the tax credit for energy efficient products  “placed in service” in 2009, you will need to file the 2009 IRS Form 5695 and submit it with your 2009 taxes (by April 15, 2010). Currently, only a draft version of this form is available, without the instructions section. (The IRS defines “placed in service” as when the property is ready and available for use.)

On the draft 2009 1040 form , the residential energy tax credit (from Form 5695) is claimed on line 52.

Also, consumers should save their receipts and the Manufacturer’s Certification Statement for their records. A Manufacturer’s Certification Statement 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 Web sites to facilitate identification of qualified products.

So, I hope this clears up any questions you or your customers have on water heater rebates, Energy Star qualifications and tax credits. If not, feel free to e-mail me at faloonk@bnpmedia.com  or call me at 630/694-4004. I’ll try to answer your questions, or at least steer you in the right direction.