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Water Heater Replacement Tax Deductible

If your water heater is over 15 years old, it’s time to start considering a replacement. New hybrid water heaters cost between $1,500 and $3,000 on average. But if you choose the right model with a high energy efficiency rating (known as UEF or “ultra-efficiency factor”), your investment will pay off in the form of lowered utility bills. And depending on the federal tax credits and rebates available to you, that amount may be significantly lower than the purchase price.

In fact, according to EnergyStar, you can qualify for a $300 25C federal tax credit on ENERGY STAR certified hybrid heat pump water heaters that are purchased and installed through December 31, 2022. State, local and utility rebates also may be available for residential water heater replacement.

To claim the credit, homeowners must submit a Manufacturer’s Certification Statement with their IRS tax return. The Statement verifies that the qualifying product or component was purchased and installed in the homeowner’s existing primary residence.

Is Water Heater Replacement Tax Deductible?

It must be used for residential purposes only and can’t be claimed for new construction or rental properties. The manufacturer’s statement must include a serial number and be signed by the manufacturer or their authorized representative. Homeowners must keep a copy of the Manufacturer’s Certification Statement for their records.

In addition to the federal tax credits, homeowners can take advantage of Colorado state and local rebates. These rebates can cover a large portion of the initial purchase costs, and are available on top of any federal energy efficiency tax credits or incentives that apply.

Before you start shopping, consult with a contractor or energy efficiency experts to determine which type of water heater makes the most sense for your climate and lifestyle. And remember that many rebates and tax credits have deadlines that you must meet to receive your money back. You may want to plan for the cost of your energy efficient upgrades in separate years, to ensure that you’re able to claim all available credits and incentives.