Energy bills are one of the biggest monthly expenses for families in the United States, and the water heater can account for up to 20% of the total. To help reduce this cost, the government is now offering a $1,500 tax credit to homeowners who switch to heat pump water heaters (HPWHs)—an energy-efficient alternative that can save you money every month.
This incentive is part of the Energy Efficient Home Improvement Tax Credit, aimed at encouraging Americans to invest in eco-friendly technology while cutting down on high utility bills.
Why Heat Pump Water Heaters Are Better
A heat pump water heater works by transferring heat from the surrounding air into the water, instead of generating heat directly. This method uses up to 4 times less energy than traditional electric or gas heaters.
Benefits of heat pump water heaters:
- Up to 400% more efficient than standard models
- Lower monthly energy bills
- Reduced carbon footprint
- Eligible for government tax credit
While many households have already made the switch, others are held back by the initial cost. That’s where this $1,500 tax break can help.
What Is the Energy Efficient Home Improvement Tax Credit?
The Energy Efficient Home Improvement Tax Credit is managed by the Internal Revenue Service (IRS). It allows homeowners to claim a credit on their federal tax return when they upgrade to qualified energy-saving products—including heat pump water heaters.
You can claim this credit using IRS Form 5695 during the year you install the new appliance.
New 2025 Requirements: What’s Changed?
Starting in 2025, the IRS requires each eligible product to have a Product Identification Number (PIN) from the manufacturer. This helps the IRS confirm that the product qualifies for the tax credit.
Manufacturers need to become Qualified Manufacturers (QM) to issue PINs. But since this registry is still being developed, here’s what you need to do for 2025 installations:
- Use a product from a Qualified Manufacturer (QM)
- Include the four-digit QM code on your 2025 tax return
- File using IRS Form 5695 to claim the $1,500 credit
This applies to heat pump water heaters and outdoor heat pump units.
How to Claim the Tax Credit
- Upgrade to a heat pump water heater in 2025
- Make sure the product comes from a qualified manufacturer
- Ask the installer for the QM code
- Fill out IRS Form 5695 when filing your 2025 taxes
- Submit your claim and receive up to $1,500 as a tax credit
This is not a rebate or a check—the tax credit is applied to your total taxes owed, helping you save money at tax time.