Incentives, Reviewed June 2026
Tankless Water Heater Rebates & Tax Credits
The federal tax credit ended on December 31, 2025. For a 2026 installation, savings now come from utility and state rebates: up to $1,300 in utility rebates (no federal credit since December 31, 2025).
Federal Energy Tax Credit (25C): Ended
$0 for 2026 installations
The 25C credit (30% of cost, capped at $600 for tankless) ended for any unit placed in service after December 31, 2025, under the One Big Beautiful Bill Act. Units installed during 2025 can still be claimed on the 2025 tax return.
Utility Rebates
Varies by gas utility, typically $80–$1,300
ENERGY STAR certified tankless units; check your gas utility's current program
Verified State & Utility Rebate Programs
These programs were confirmed live against the operator's published schedule in June 2026. Most other state programs now favor heat pump water heaters over gas tankless; check the DSIRE database for your area.
California (SoCalGas territory)
SoCalGas Home Energy Efficiency Rebate
$80–$1,300 (tiered by UEF)
Oregon (NW Natural / Cascade / Avista)
Energy Trust of Oregon
$400
Installed in 2025? You Can Still Claim the Federal Credit
The 25C credit applies to the tax year the unit was placed in service. If your tankless water heater was installed on or before December 31, 2025, claim it on your 2025 return:
- Confirm the unit met ENERGY STAR Most Efficient criteria (UEF 0.95 or higher for gas) at the time of installation
- For 2025 installs, the unit must have been produced by an IRS-registered qualified manufacturer; get the manufacturer's certification statement and PIN from their website
- Keep all receipts, including installation labor
- File IRS Form 5695 “Residential Energy Credits” with your 2025 tax return
- The credit is 30% of total cost, capped at $600 for tankless units, and reduces your tax liability dollar-for-dollar
Example: 2026 Rebate Scenario (SoCalGas Territory)
SoCalGas pays tiered rebates on qualifying ENERGY STAR tankless units replacing a storage water heater, from $80 (UEF 0.82–0.86) up to $1,300 (UEF 0.98+), per the program schedule published for 2026. Verify the current tier at socalgas.com before purchase.
What Changed: The One Big Beautiful Bill Act
The Energy Efficient Home Improvement Credit (Internal Revenue Code Section 25C) was created in its modern form by the 2022 Inflation Reduction Act and was originally scheduled to run through 2032. The One Big Beautiful Bill Act, signed July 4, 2025, terminated it early: no credit is allowed for any property placed in service after December 31, 2025. The IRS confirms this on its Energy Efficient Home Improvement Credit page and in its OBBB FAQs. The Residential Clean Energy Credit (Section 25D, covering solar and similar systems) ended on the same date.
Two common misconceptions worth clearing up: the 25C credit for gas tankless water heaters was capped at $600 per year, not $2,000; the $2,000 cap applied only to heat pumps and heat pump water heaters. And the deadline is about installation, not payment: paying a deposit in 2025 for a 2026 install does not preserve the credit.
Finding Your Local Rebates
Utility rebate programs change yearly, and many are shifting funds from gas tankless toward heat pump water heaters. To find what is current in your area:
- Visit the DSIRE database (dsireusa.org) for a comprehensive list of state and local incentives
- Check your gas utility's website for current rebate programs and qualifying-product lists
- Ask your installer, experienced plumbers know which local programs are active
- Visit energystar.gov for the latest qualifying product lists
Important Notes
- Utility rebates usually require the unit to replace an existing storage water heater and to appear on the program's qualified-product list before purchase.
- Most programs pay after installation, on submission of receipts and the installer's details, typically within 6–8 weeks.
- If you are claiming a 2025 install on your 2025 federal return, the credit is non-refundable: it can reduce your tax to $0 but won't generate a refund, and unused credit cannot be carried forward.