Author: Bill Hoelzer / Published: October 2023 / Read Time: 5 minutes

If you’re thinking about installing a heat pump water heater, the timing couldn’t be better. Install your new water heater in 2023, so you can claim the 30% tax credit in 2024 rather than 2025.

The easiest way to get started is to give us a call at 541.330.8767, or send us a message anytime.

2023 Heat Pump Water Heater Tax Credits

This year, you can claim a tax credit that covers 30% up to $2,000 for a new heat pump water heater. Compare that to the $300 tax credit you could get in 2022. We’re talking about some serious savings for tax year 2023.

Which heat pump water heaters qualify for the tax credit?

The IRS offers specific guidelines:

To qualify for the tax credit, your heat pump must meet or exceed the highest efficiency level (except for any extra level) that the Consortium for Energy Efficiency (CEE) establishes at the start of the year you install it. You can check the CEE Directory of Efficient Equipment to find out which systems are eligible.

The bottom line: You’ll need to install a highly efficient heat pump water heater to get the tax credit. If you have questions about which heat pump water heater makes sense for your home, please give us a call at 541.330.8767.

The best part about installing an energy efficient heat pump water heater?

You’ll not only save on your tax bill, but also, you’ll save money every time you run the shower. ENERGY STAR estimates that an average family of four will save about $550 a year when they replace a standard electric water heater with a heat pump water heater. 

Any other limitations on heat pump water heater tax credits?

The total amount of tax credits you can claim in a year is limited by an annual cap. The annual cap is currently $3,200. Here are the details:

• $2,000: If you install a heat pump, heat pump water heater, or biomass stove / boiler in your home, you can get a tax credit of up to $2,000. The $2,000 limit applies to any combination of these systems installed in a calendar year. Geothermal heat pumps aren’t common in Portland, but it’s worth mentioning that geothermal heat pumps have a separate tax credit.

• $1,200: You can claim an additional $1,200 for energy efficiency upgrades, such as sealing air leaks and adding insulation for your home in Portland to Central Oregon.

So you could offset 30% of your costs up to $2,000 for a new heat pump water heater, then save another 30% up to $1,200 to seal air leaks and top up the insulation in your attic and walls. Send us a message if you’d like help coming up with a plan to max out your available tax credits.

2023 Heat Pump Water Heater Cash Incentives

With any breakdown of cash incentives, you should know that incentives change constantly. For the latest, please visit the website for your utility or the Energy Trust of Oregon.

In general, you can only get cash incentives for a heat pump water heater if you heat your home with electricity rather than gas (more on this below). But first, let’s give some context.

What’s the difference between a cash incentive and tax credit

A cash incentive is a direct payment that you get from your utility or the Energy Trust of Oregon when you install a qualifying heat pump water heater. 

A cash incentive lowers the upfront cost of the system and can be added to other incentives, such as tax credits. A tax credit is an amount that you can subtract from the taxes that you owe to the federal or state government. You can claim a tax credit when you file your tax return for the year that you bought and installed the heat pump water heater. 

A tax credit does not lower the initial cost of the equipment, but it can make the equipment cheaper by reducing your tax bill. For example, if you buy a heat pump water heater for $3,500 and you qualify for a 30% federal tax credit and a $700 cash incentive, your final cost would be:

$3,500 - $700 (cash incentive) - $1,050 (federal tax credit) = $1,750

Please note that you don’t have to be an expert on cash incentives. If you hire GreenSavers to install your heat pump water heater, we handle the paperwork needed to process your cash incentives. We’ve got you covered!

Cash incentives from Pacific Power and PGE

If you heat your home with electricity from Pacific Power or PGE (and check a few other boxes), you can get a cash incentive of $700 in 2023. Please visit the Energy Trust of Oregon’s website for the latest.

2023 Heat Pump Water Heater Costs

The cost of your heat pump water heater depends on a few factors:

The type and size of the heat pump water heater

There are different types and sizes of heat pump water heaters. The size of the heat pump water heater depends on the how much hot water you need and how much space you have for installation. In general, bigger and more complex heat pump water heaters are more expensive than smaller, simpler ones.

The efficiency and performance of the heat pump water heater

The efficiency of a heat pump water heater is measured by the energy factor (EF), which indicates how much energy is used to heat a given amount of water. As the EF increases, you also see an increase in efficiency and upfront costs (with a decrease in operating costs).

The installation costs of the heat pump water heater

Installing a heat pump water heater may require additional plumbing, electrical, or ventilation work, depending on the current condition of your home. The biggest variable is whether or not you have an existing dedicated 30 amp circuit, which is needed to power the water heater. Bringing in an electrician and permitting can add substantially to the costs.

In general, most heat pump water heaters cost between $3,500 and $4,500 before subtracting the available incentives and tax credits. If you’d like a proposal to install a heat pump water heater, please give us a call anytime: 541.330.8767.