Tankless Water Heater Tax Credit
You might be aware that President Obama's Recovery Act of 2009 contains a number of tax credits and other incentives for various green and renewable energy home improvements. For example, the Residential Renewable Energy Tax credit will help fund up to 30% of a major home renovation, such as installing solar panels to power your home. However, even with tax credits, installing solar panels is a major financial investment that will take years to repay. For homeowners not ready to make that kind of investment, consider taking advantage of the Home Energy Efficiency Improvement Tax Credit instead.
The Home Energy Efficiency Improvement Tax Credit provides up to $1,500 for home improvements that increases a home's energy efficiency. Amongst other things, this tax credit covers upgrades in your appliances – including your water heater.
Why is the government interested in helping you upgrade your water heater? Traditional tank water heaters consist of an astounding 14 – 25% of your home's total energy consumption.
Non-solar tankless water heaters are one of the appliances covered by the tax credit. For a tankless water heater to be eligible for the tax credit, it must have an Energy Factor (EF) of at least 0.82. (Note that most models of Paloma and Noritz tankless water heaters meet this requirement.)
How to Apply for the Tax Credit
If your tankless water heater was “placed in service” (that means it was available for use) in 2009, you can claim it in your upcoming 2009 taxes. You'll need an IRS Form 5695 to fill out and submit with your 2009 taxes. You can find this form on the IRS website. On your standard IRS 1040 form, you'll claim the tax credit on line 52.
If your tankless hot water heater wasn't available for use until 2010, you'll need to wait until next year's tax season to claim the credit.
Don't forget to save the receipt for your tankless water heater purchase. You'll also want the Manufacturer's Certification Statement – a signed statement that certifies the water heater qualifies for the tax credit. You don't need to submit your receipt or the certification statement, but you will need to keep it in case you're ever audited.