Is there still a federal tax credit for heat pump water heaters?

What changed

Public Law 119-21, signed July 4, 2025 and commonly called the One Big Beautiful Bill, cut off several clean energy credits early. For the Energy Efficient Home Improvement Credit (Internal Revenue Code section 25C), the IRS states plainly: the credit will not be allowed for any property placed in service after December 31, 2025^[1].

In practice:

Install (placed in service) date	25C status
2023 through Dec 31, 2025	Eligible if the unit met the requirements; claim on that year's return[2]
Jan 1, 2026 or later	Not allowed[1]

The related Residential Clean Energy Credit (25D), which covered solar water heating, also ended: the IRS says it is not allowed for expenditures made after December 31, 2025, and that an installation completed after that date counts as a 2026 expenditure even if paid earlier^[1].

What the credit used to be worth

For property placed in service in 2023 through 2025, the IRS lists^[2]:

• Up to $2,000 per year for qualified heat pumps and heat pump water heaters (along with biomass stoves and boilers).
• Up to $600 per item for qualifying natural gas, propane or oil water heaters, within a $1,200 annual limit for that group of improvements.

If you installed a qualifying unit in 2025 and have not claimed it, the credit is still available on your 2025 return. Check the IRS instructions for the product identification requirements.

Myth: "Get 30% back on a new water heater"

Many contractor sites, cost guides and older articles still promise a 30% federal credit. That was accurate for 2023 to 2025 installs. It is wrong for anything installed in 2026. Even cost guides refreshed in January 2026 still tell readers that qualified tankless units may be eligible for federal tax credits^[11]. If a quote or a sales pitch builds the 30% into the price, ask the seller to remove it.

What still exists in 2026

Utility rebates. These are separate from federal tax law and many are still running. Examples we confirmed at the source:

Program	Rebate	Key conditions
Austin Energy (TX)	$1,000 for an ENERGY STAR hybrid or heat pump water heater	At least 40 gallons, Energy Factor 2.0 or better, 6-year warranty on major components, replaced unit 10+ years old, apply within 90 days of purchase, funding limited[8]
ComEd (IL)	$750 for an ENERGY STAR heat pump water heater	Purchased July 1 to December 31, 2026; apply within 60 days or by February 28, 2027, whichever comes first; higher amounts for income-eligible customers[9]
Nicor Gas (IL)	$225 gas tank (UEF .86 or higher); $150 tankless (UEF .95 or higher)	ENERGY STAR certified, installed in 2026, one rebate per account[10]

State programs. Some states run their own home energy rebate programs with separate rules and timelines. Check your state energy office.

ENERGY STAR still matters. Most utility rebates require ENERGY STAR certification. A certified integrated heat pump water heater must reach a UEF of at least 3.30 and carry at least a 6-year warranty on the sealed system^[7].

What did not change: the 2029 efficiency standard

The tax credit and the efficiency rules are separate. DOE's May 2024 standard for consumer water heaters (89 FR 37778) took effect July 5, 2024 and requires compliance for units made on or after May 6, 2029^[3][4]. DOE's consumer water heater page still lists that date^[3].

What the rule does, in DOE's words: electric storage water heaters in the most common sizes must reach the efficiency of an entry-level heat pump, while gas, oil and larger electric storage units see a "moderate increase in efficiency"^[5]. DOE projects more than half of new electric storage units will be heat pumps by then, compared with 3% when the rule was finalized^[5]. It is not a ban on gas tanks.

Gas tankless rule: gone. DOE's separate December 2024 rule for gas tankless units was disapproved by Congress (H.J.Res.20, signed May 9, 2025 as Public Law 119-6), and DOE withdrew it as of May 20, 2025^[3][6].

When to call a pro

• To confirm a specific model's ENERGY STAR status and rebate eligibility before you buy.
• To get the paperwork a utility rebate requires: model number, invoice, and sometimes a permit.
• For tax questions about a 2025 install: a tax professional, not a contractor.
• To size a heat pump water heater for your space and household.