Considering switching to a heat pump water heater? That's the right choice to make to improve your home's energy efficiency, increase its value, and save the planet. However, you may be concerned about the initial conversion costs.
QuitCarbon will provide you with all the essential information, including how tax credits and rebates from the recently enacted 2022 Inflation Reduction Act can be used.
What Are Heat Pump Water Heaters?
Heat pumps are the opposite of refrigerators. While refrigerators remove heat from an enclosed box and release it into the surrounding air, heat pumps extract heat from the surrounding air to generate heat. This is how heat pump water heaters produce hot water.
Unlike traditional electric water heaters, heat pumps water heaters don't generate heat directly. Instead, they use electricity to transfer heat from one location to another. They are also known as hybrid electric water heaters because they have an electric coil backup that heats water when it can't generate enough heat from the air (this is rarely needed). Heat pump water heaters are two to three times more energy-efficient than conventional electric water heaters and gas-powered heaters. Switching from a standard electric water heater to a heat pump water heater can save a household of four up to $500 per year on their electricity bill.
How Much Does Switching to a Heat Pump Water Heater Cost?
There are many different heat pump water heaters available, ranging from approximately $1,200 to over $3,000. Additionally, installation costs may vary based on factors such as:
- Size (a general rule of thumb is you'll need about 10 gallons of tank size per person)
- Location of home installation
- Any necessary material changes
- Electric panel changes (if needed)
- Costs for your chosen contractor
Thankfully, a combination of federal, state, and utility rebates, along with federal and state tax credits, can significantly reduce conversion costs.
Tax credits and rebates for heat pump water heaters
The Biden administration passed the Inflation Reduction Act in 2022, which expanded federal tax credits for heat pump water heaters and introduced a new plan to help low- and middle-income families afford upgrades.
To start, there is a tax credit of 30% of the project cost, up to $2,000, for qualifying heat pump water heaters with an ENERGY STAR® rating. The conversion must take place at your existing home and principal residence; new constructions and rentals are not eligible.
Furthermore, there is a $500 rebate available to cover contractor expenses and offset the HPHW installation cost. All these rebates can be combined with existing tax credits. Notably, for HPHWs purchased and installed between January 1, 2023, and December 31, 2032, you can claim a tax credit of 30% of the project's cost, up to $2,000. It's important to note that only HPHWs with an ENERGY STAR® rating qualify for this credit.
Additionally, the High Efficiency Home Rebate Program (HEEHRA) is expected to be implemented in late 2023. This allows households with income that is less than 150% of the median income in your area, you should qualify for a rebate under the IRA. The "area" ZIP code, county, or even your state, depending on the specific regulations of each state.
Here's how the IRA rebates, expected to be available in late 2023 or early 2024, apply to your HPWH conversion:
- If your income is up to 80% of the median household income in your area, you can receive up to 100% of the HPHW's cost, up to $1,750.
- If your income is more than 80% but less than 150% of the median household income in your area, you can receive a rebate of 50% of the HPHW's cost. To claim the maximum rebate of $1,750, the HPHW's cost must be $3,500 or higher. The total rebate cost under HEEHRA is $14,000.
- Unfortunately, if your income exceeds 150% of the median household income in your area, you are not eligible for a rebate.
QuitCarbon has helped hundreds of homeowners electrify their homes. We can give you a free "Electrification Plan" and connect you with trusted contractors who can get the job done. Ready to start saving money and the planet? Get in touch today!