Installing a heat pump water heater (HPWH) qualified for a federal tax credit of up to $2,000 through December 31, 2025. If you installed one by that date, you can still claim the credit on your 2025 tax return.
Credit Expired December 31, 2025
The 25C Energy Efficient Home Improvement Credit expired on December 31, 2025. If you installed a qualifying heat pump water heater by that date, you can still claim the credit on your 2025 tax return filed in 2026. (IRS FAQ on Public Law 119-21)
Quick Summary
- 30% of costs, up to $2,000 credit for qualifying HPWHs
- Shares the $2,000 cap with air-source heat pumps (Line 29a)
- Requires manufacturer's 4-character QMID code
- Report on Form 5695, Part II, Line 29c
- Can stack with electrical panel credit (Line 25) for up to $600 more
What Qualifies
Heat pump water heaters use electricity to move heat from the surrounding air into the water tank, making them 2-3 times more efficient than conventional electric resistance water heaters.
To qualify for the credit, your HPWH must:
Efficiency Requirements
- Uniform Energy Factor (UEF) ≥ 3.75 (≥ 4.0 for units ≥ 80 gallons)
- Meet ENERGY STAR certification requirements
- Be placed in service between Jan 1, 2023 and Dec 31, 2025
- Be installed in your US residence (primary or secondary home)
Most ENERGY STAR certified heat pump water heaters meet these requirements. Check your equipment specifications or ENERGY STAR label.
Credit Amount
Water Heater Credit Comparison
| Equipment | Credit Limit | Notes |
|---|---|---|
| Heat Pump Water Heater | $2,000 | 30% of costs (shared with heat pumps) |
| Gas/Oil/Propane Water Heater | $600 | 30% of costs |
| Tankless Water Heater (gas) | $600 | 30% of costs, UEF ≥ 0.95 |
Heat pump water heaters get the highest credit due to their superior efficiency.
The credit covers 30% of your total costs, including:
- Equipment purchase price
- Installation labor
- Necessary plumbing modifications
Important cap: The $2,000 maximum is shared between Line 29a (air-source heat pumps) and Line 29c (heat pump water heaters). If you installed both, the combined credit cannot exceed $2,000.
Tax Credit Calculator
This calculator provides an estimate. Your actual credit may vary based on your tax situation. The credit is non-refundable and cannot exceed your tax liability.
Example: You installed a $2,500 HPWH. The credit is 30% × $2,500 = $750.
Example with shared cap: You installed both:
- Heat pump: $6,000 (30% = $1,800)
- HPWH: $2,500 (30% = $750)
- Total calculated: $2,550
- Actual credit: $2,000 (capped)
Where to Enter on Form 5695
Heat pump water heaters go on Form 5695, Part II, Section B, Line 29c.
Gather Documentation
- Invoice showing equipment model, installation date, and total cost
- ENERGY STAR certificate or product specifications
- Manufacturer's QMID code (find in our directory)
- Electrical panel invoice if upgrades were required
Complete Line 29c
Line 29c: Enter your HPWH manufacturer's 4-character QMID in the boxes, then enter the cost of your most expensive heat pump water heater.
The QMID is a 4-character alphanumeric code that identifies your equipment manufacturer. Enter it exactly as shown in the IRS database or our directory.
If you only installed one HPWH, skip Line 29d.
Line 29d (if applicable)
If you installed additional heat pump water heaters, enter their combined cost on Line 29d.
Calculate Credit
- Line 29g: Total all costs from Lines 29a-29f
- Line 29h: Multiply by 30%, maximum $2,000
- This is your combined heat pump credit (air-source + water heater)
Note
If you installed ONLY a heat pump water heater (no air-source heat pump), you'll still use Lines 29c and 29d. Line 29a would be blank or zero.
Don't Miss the Electrical Panel Credit
Stack for Maximum Savings
If your contractor upgraded your electrical panel, added circuits, or increased service capacity to support the HPWH, you can claim an additional credit of up to $600 on Line 25. This is separate from the $2,000 HPWH credit.
Heat pump water heaters typically draw 15-20 amps and often require dedicated circuits. If electrical work was needed:
Line 25a: Answer "Yes"
Line 25b: Enter code H (for heat pump water heater enabled property)
Line 25c: Enter cost of electrical improvements
Line 25d: Enter your HPWH's QMID
Line 25e: Calculate 30% of costs, max $600
Example: You paid $1,200 for panel upgrade and circuit installation.
- $1,200 × 0.30 = $360
- Enter $360 on Line 25e
Combined savings: $750 (HPWH credit) + $360 (electrical credit) = $1,110 total
QMID Requirement
Starting with the 2025 tax year, you need your manufacturer's QMID — a 4-character IRS registration code. It won't be on your water heater or your contractor's invoice. Look it up in our QMID directory or call the manufacturer.
No QMID, No Credit
The IRS requires a valid QMID on Form 5695 for all 25C claims starting in 2025. Equipment from unregistered manufacturers does not qualify.
Common HPWH manufacturers and their QMIDs:
| Manufacturer | Common Brands | QMID |
|---|---|---|
| Rheem | Rheem, Ruud | K3A8 |
| A. O. Smith | A. O. Smith, State | A5X5 |
| Bradford White | Bradford White | V5B3 |
| Stiebel Eltron | Stiebel Eltron | — |
Brand confusion? If your water heater says "Ruud," that's Rheem. "State" is A.O. Smith. Our directory maps brands to the correct manufacturer automatically.
What's NOT Covered
Excluded Costs
- Extended warranties
- Maintenance agreements
- Water softeners or filtration systems
- Cosmetic work or finishing
- Existing tank removal fees (in most cases)
The credit covers the HPWH equipment and necessary installation labor. Ancillary equipment and optional services don't qualify.
Stacking With Utility Rebates
The 25C tax credit often stacks with utility and state rebates. Apply rebates first, then calculate your tax credit on the remaining cost.
Example:
- Total HPWH installation: $3,000
- Utility rebate received: -$500
- Your out-of-pocket cost: $2,500
- 25C credit (30% of $2,500): $750
You keep both the $500 utility rebate and the $750 federal credit, for a total of $1,250 in savings.
IRS Note
Manufacturer rebates, utility rebates, and other subsidies reduce your basis for calculating the credit. If you received a $300 manufacturer rebate, subtract it from your costs before calculating the 30%.
Non-Refundable Credit
The 25C credit is non-refundable, meaning it can reduce your tax liability to zero but won't generate a refund beyond what you've paid in.
Example: You owe $500 in federal taxes. Your HPWH credit is $750. The credit reduces your taxes to $0, but you won't receive the extra $250 as a refund.
No Carryforward
Unused 25C credits cannot be carried forward to future years. If you can't use the full credit in the year you claim it, the unused portion expires.
Plan your installation timing accordingly. If you have minimal tax liability in a given year, consider whether spreading improvements across multiple years makes sense (if the credit were still active).
Common Mistakes
Warning
Wrong line: HPWHs go on Line 29c, not Line 23. Line 23 is for gas/oil/propane water heaters with the $600 cap.
Missing electrical credit: Electrical panel work qualifies for a separate $600 credit on Line 25. Many people miss this.
Wrong QMID: Make sure you're using the manufacturer's QMID, not a brand alias. Use our directory to find the correct code.
Forgetting the shared cap: If you installed both an air-source heat pump (Line 29a) AND a HPWH (Line 29c), the combined credit maxes out at $2,000.
Including tank removal: Unless tank removal is part of the installation invoice, it typically doesn't qualify. Check with your tax professional.
Record Keeping
Keep these documents for at least 3 years after filing:
- Contractor invoice with model number, installation date, and itemized costs
- ENERGY STAR certificate or product specifications
- QMID documentation
- Payment receipts
- Electrical panel invoice (if applicable)
The IRS can request proof during an audit. Clean records prevent issues.
Multiple HPWHs
If you installed more than one heat pump water heater:
Line 29c: Enter the QMID and cost of your most expensive HPWH
Line 29d: Enter the combined cost of all other HPWHs
The total is added on Line 29g and included in the 30% calculation, subject to the $2,000 combined cap with air-source heat pumps.
Installation in Second Homes
Good News
Heat pump water heaters can be claimed for second homes and vacation properties you use personally. The IRS requires the home be "located in the United States and used as a residence by the taxpayer." Rental properties where you don't live don't qualify.
Self-Installation
You can claim the credit for self-installed equipment, but only for material costs. The value of your own labor doesn't count.
Professional installation: 30% of materials + labor
Self-installation: 30% of materials only
Note: HPWH installation typically requires plumbing and electrical work. Check local code requirements. Many jurisdictions require licensed professionals for these tasks.
Official Resources
Download the current year Form 5695
IRS.govSearch certified heat pump water heaters
ENERGY STARIRS overview of the Energy Efficient Home Improvement Credit
IRS.govNext Steps
- Find your QMID: Search our directory by brand or manufacturer name
- Gather documents: Invoice, ENERGY STAR certificate, payment records
- Complete Form 5695: Enter QMID and costs on Line 29c, electrical work on Line 25
- File your return: Claim your credit on your 2025 tax return (filed in 2026)
The 25C credit for heat pump water heaters can save you up to $2,000, plus an additional $600 for electrical work. Don't leave that money on the table.