Before it ended, the federal 25C credit allowed up to $2,000 a year for qualified heat pumps and water heaters in 2025. It ended for property placed in service after December 31, 2025, so a water heater installed in 2026 gets no federal credit.
So for a 2026 water heater, the money comes from your utility, not the IRS. Here's what each official page showed on October 9, 2026.
Has the Water Heater Tax Credit Ended?
Yes. IRS Fact Sheet FS-2025-05 says the 25C credit will not be allowed for any property placed in service after December 31, 2025. The IRS page for the 25C credit, which ended after December 31, 2025, lists $2,000 a year for qualified heat pumps, water heaters, biomass stoves or boilers.
The IRS also says the credit had to be claimed for the tax year the property was installed, not merely purchased. And for 2025 installations, each item had to come from a qualified manufacturer, with its Qualified Manufacturer Identification Number (QMID) reported on the return.
Can I Still Claim It for a 2025 Installation?
Yes, if the water heater was placed in service by December 31, 2025. File Form 5695 with the 2025 return for work completed by December 31, 2025, after which the 25C credit ended. The credit is nonrefundable, and the IRS says excess credit can't be applied to future years.
Before 25C ended after December 31, 2025, the IRS page listed a combined maximum of $3,200 a year in 2025: $1,200 for most efficiency improvements plus the $2,000 heat pump and water heater limit. A tax professional can confirm which limit applies to your water heater.
What Rebates Replaced It in California?
Utility rebates, which depend on your address. As of October 9, 2026, SMUD pays $3,000 to $4,000 for gas-to-electric heat pump water heaters, LADWP pays $1,500 to $2,500 per unit, SoCalGas pays $80 to $1,500 for tankless and $300 to $575 for storage gas models, and SCE's ESA replaces some for free.
| Program (official page, October 9, 2026) | Water heater offer |
|---|---|
| SMUD | $3,000–$4,000 gas-to-electric heat pump water heater; $1,000 electric-to-electric |
| LADWP | $1,500–$2,500 per heat pump water heater (UEF 3.3 or higher, 30 gal or more) |
| SoCalGas | $80–$1,500 tankless; $300–$575 storage (UEF 0.64 or higher) |
| SCE Energy Savings Assistance | No-cost heat pump water heater replacement for income-qualified households |
The heat pump water heater rebates guide and the SoCalGas water heater rebates guide cover each program's rules.
What Should a 2026 Buyer Do Instead?
Check your utility's rebate before you buy, since most require specific efficiency ratings and some a permit. LADWP needs a UEF of 3.3 or higher for heat pump water heaters, and SoCalGas needs a UEF of 0.64 or higher for storage models.
Then keep the paid invoice, model information and any permit for the rebate application. The free rebate calculator shows the programs we've verified for your address.
Official Sources
The credit rules come from the IRS, and the rebate amounts from each utility's own page, all checked on October 9, 2026.
- IRS: Energy Efficient Home Improvement Credit, the 2025 limits and rules for a credit that ended after December 31, 2025
- IRS FS-2025-05, the IRS table showing when each credit ended
- SMUD home appliance rebates, SMUD's heat pump water heater rebates
Frequently Asked Questions
Has the federal heat pump water heater tax credit ended?
Yes. The 25C credit ended for property placed in service after December 31, 2025, according to IRS Fact Sheet FS-2025-05. In 2025 it allowed up to $2,000 a year for qualified heat pumps and water heaters; a 2026 installation gets no federal credit.
Can I get a tax credit for a gas water heater?
Not for a 2026 installation, because the 25C credit ended after December 31, 2025. SoCalGas customers can instead get $300 to $575 for a qualifying storage model or $80 to $1,500 for a tankless model replacing a tank, as of October 9, 2026.
What did the ended 25C credit pay for a water heater in 2025?
The IRS page for the 25C credit, which ended after December 31, 2025, lists up to $2,000 a year for qualified heat pumps, water heaters, biomass stoves or biomass boilers, within a $3,200 overall annual maximum, for property placed in service through December 31, 2025. That credit has since ended for later installations.
Replacing a water heater in 2026? See the verified rebates for your address with the free rebate calculator.