Most types of water heaters other than gas tankless systems are:

  • Impractical for the average home
  • Not yet widely available
  • Ineligible for this federal tax credit—although keep checking Energy Star for updates.

Electric tankless water heaters and electric storage tank water heaters don’t qualify for the federal tax credit. The energy savings from these electric systems is minimal. The only gas storage tank water heaters that meet the energy-efficiency requirements of the tax credit are too large for standard residential use.

Solar water heaters are eligible for a tax credit under a separate program.

If you can wait, two new water-heating technologies eligible for the $300 tax credit should  become more widely available:

  • Gas-condensing water heaters are similar to gas storage tank heaters, but they make more efficient use of gas. Annual savings is similar to a gas tankless system.
  • More intriguing are electric heat pump water heaters that use pressure to heat a liquid refrigerant that in turn heats water in a storage tank. Heat pump water heaters will likely cost a bit less than tankless systems, and the average annual energy savings is much higher: $290 vs. the $115 you get from going tankless.