Getting Your Federal Tax Credit for Gas Tankless Water Heaters
If you're planning to install a gas tankless water heater, you might qualify for a $600 federal tax credit. The government is offering this 30% credit through December 2025 to help cover the cost of the unit and its installation.
This tax credit comes from the 25C Energy Efficient Home Improvement Tax Credit program. It's designed to help people save money when they upgrade to more efficient home equipment. Your gas tankless water heater needs to meet certain efficiency standards and have ENERGY STAR® certification to qualify.
Understanding how this tax credit works can help you decide on timing and which water heater to choose if you're already thinking about replacing your current system.
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How the Tax Credit Works
This federal tax credit is part of a bigger program that covers various energy-efficient home upgrades. Gas tankless water heaters qualify if they meet certain requirements. The program is set to end on December 31, 2025.
Gas tankless water heaters must meet two requirements to qualify: ENERGY STAR® certification and a Uniform Energy Factor (UEF) of 0.95 or higher. The UEF measures how efficiently your water heater converts fuel into hot water—a 0.95 rating means 95% efficiency with minimal energy waste.
The credit covers 30% of your total standard project costs up to a maximum of $600. This includes both the water heater purchase price and professional installation expenses. So, a $2,000 project would qualify for the full $600 credit, while a $1,500 project would yield $450.
Gas tankless water heaters fall under the annual $1,200 limit for traditional efficiency improvements. This limit is separate from the $2,000 annual limit that applies to heat pumps and biomass systems. Within the $1,200 category, you could combine a gas tankless credit with other qualifying improvements like energy-efficient windows or doors during the same tax year.
Qualifying Gas Tankless Water Heater Models
Many manufacturers offer ENERGY STAR® certified gas tankless models with 0.95 UEF ratings that meet federal tax credit requirements. A. O. Smith provides several qualifying options through our ADAPT® series of condensing gas tankless water heaters.
The ADAPT®+ Premium condensing models feature 0.95 UEF efficiency and ENERGY STAR® certification. These units come in 160,000, 180,000, and 199,000 BTU configurations and include an integrated recirculation pump for faster hot water delivery. They can be installed indoors or outdoors, depending on your home.
A. O. Smith's ADAPT SC® Standard condensing models also qualify with their 0.95 UEF rating and ENERGY STAR® certification. These units use dual heat exchangers and offer the same BTU options as the Premium series while meeting all federal tax credit requirements.
Both A. O. Smith series include X3® Scale Prevention Technology. This technology prevents mineral buildup that typically requires annual descaling maintenance, eliminating a yearly expense that affects other tankless brands.
A. O. Smith's ADAPT® models are designed with installation benefits in mind. They work with 2-inch venting and only need a half-inch gas line, which can make the installation simpler and cheaper.
Documentation and Filing Requirements
Claiming the federal tax credit requires specific documentation and proper filing procedures. The IRS has updated requirements for 2025 that affect how you report qualifying purchases.
You must file IRS Form 5695 (Residential Energy Credits) with your regular tax return. If you are unsure about eligibility, consult with your tax advisor. Starting in 2025, the form requires the manufacturer's four-digit Qualified Manufacturer code. A. O. Smith's code is A5X5, which you'll need to include on the form to verify your water heater comes from an approved manufacturer.
Keep records of your project. Save your purchase receipt showing the model number, purchase price, and total installation costs. Your contractor should provide documentation confirming the installation date and that your unit meets ENERGY STAR® and UEF requirements for tax credit eligibility. You can also check A. O. Smith's rebate center to see what local utility rebates might be available in your area to stack with your federal tax credit.
The water heater must be installed in your primary residence—where you live most of the year. The credit also applies to second homes, but not rental properties unless you personally live in the rental unit. Renters can claim the credit if their lease agreements allow energy efficiency improvements.
Installation must be completed by December 31, 2025, since the credit applies to the tax year when work is finished rather than when equipment is purchased.
The credit is non-refundable, meaning it can only reduce taxes you already owe rather than creating a refund. If you owe $300 in taxes but qualify for a $600 credit, you'll receive the $300 reduction without carrying forward the unused portion.
Rebates & Tax Credits
Rebate and incentive programs provide savings to consumers for the purchase of water heaters that meet certain energy efficiency standards.
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A. O. Smith water heaters are professionally installed by local independent contractors.
Other Reasons to Consider Gas Tankless
Even without the tax credit, gas tankless water heaters offer some real advantages:
- Lower Energy Bills: They only heat water when you turn on a faucet, which can cut your water heating costs
- Takes Up Way Less Space: You can mount them on the wall instead of losing floor space to a big tank
- Hot Water That Doesn't Run Out: No more cold showers when someone uses all the hot water before you
Professional installation matters with gas tankless units. A. O. Smith works with contractors who understand the sizing, venting, and gas line requirements to get everything working right.
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Planning Your Installation
Are you ready to move forward with a gas tankless water heater? Here are some things to consider so everything goes smoothly.
Start by considering your household's hot water usage patterns and space requirements. A. O. Smith's XPERT Residential Water Heater Selector provides recommendations based on your family's shower habits, usage needs, and home specifications.
A. O. Smith works with certified contractors in your area who can assess your home's hot water needs and suggest the right ADAPT® model. These professional installers understand local codes and gas line requirements, so your installation will be done correctly and qualify for the tax credit.
If a gas tankless water heater fits your household's needs, the federal tax credit is a financial incentive to act before the end of 2025. The tax savings, combined with long-term energy benefits, can make these systems more affordable than waiting.
Need Help From A Pro?
A. O. Smith water heaters are professionally installed by local independent contractors.
A. O. Smith: Reliable Water Heating Solutions
For almost 150 years, we've been developing water heating solutions for American homes and businesses. From our manufacturing facilities in Tennessee to our nationwide network of certified installers, we design and build everything from traditional tank water heaters to advanced tankless and heat pump systems. Our commitment to innovation and reliability helps millions of families and businesses count on consistent hot water every day.
Frequently Asked Questions
You can get 30% of your total standard project cost back, up to $600 maximum. So if your gas tankless water heater and installation cost $2,000, you'll get the full $600. If it costs $1,500, you'll get $450 back. Learn more about federal tax credits for heat pump water heaters.
It needs ENERGY STAR® certification and a UEF (efficiency rating) of 0.95 or higher.
Yes! Heat pump water heaters qualify for an even larger federal tax credit—up to $2,000 instead of $600. There's also state-level promotions for qualifying water heaters; if you reside in Tennessee, check out the TVA heat pump water heater promotion.