Energy bills are one of the biggest monthly expenses for families across the US. Among all appliances, water heaters alone can make up around 20% of your electricity bill. To help lower this cost, the US government is offering financial support for homeowners who upgrade to a heat pump water heater.
This upgrade can save money and energy every month—and thanks to a government-backed program, homeowners can now get a tax credit of up to $1,500 to help cover the cost.
Why Heat Pump Water Heaters Are a Smart Choice
Heat pump water heaters (HPWHs) are much more energy-efficient than traditional water heaters. In fact, they can be up to four times more efficient. Instead of generating heat directly, they move heat from the surrounding air into the water tank. This process uses far less energy and results in big savings over time.
If you’re thinking of reducing your power bills and helping the environment, this is a great step forward.
How the $1,500 Tax Credit Works
The $1,500 incentive is offered as part of the Energy Efficient Home Improvement Tax Credit. This program is managed by the Internal Revenue Service (IRS). To get the benefit, you need to claim the tax credit when filing your federal income tax return for the year you made the upgrade.
This means that if you install a heat pump water heater in 2025, you can apply for the tax credit while filing your 2025 taxes in 2026. You’ll have to use IRS Form 5695 to claim the benefit.
New Requirements Starting 2025
From the year 2025, the IRS has introduced a new step. Manufacturers of heat pumps and water heaters must become “Qualified Manufacturers” (QM) and receive a special PIN (Product Identification Number) for each eligible product.
This PIN system ensures only approved, energy-efficient equipment qualifies for the credit. While this system is still being finalized, for 2025, homeowners can simply enter the four-digit QM code provided by the manufacturer when submitting their tax return.
This makes the process simple for now while ensuring future installations meet energy-saving standards.
Why Many People Haven’t Upgraded Yet
Even though heat pump water heaters are more efficient, the high upfront cost is a big reason why many homeowners haven’t switched yet. The good news is, this tax credit reduces the financial pressure and makes the upgrade more affordable.
With electricity costs always going up, this move can bring long-term savings to your home, making it a smart financial and environmental choice.
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