Photo of a baby taking a bath in the kitchen sink.

Photo by Nathan Dumlao on Unsplash

Hybrid water heaters have exploded onto the sustainable home living scene. They are a sustainable yet efficient way to heat water with minimal waste and energy usage. Because of their efficiency, there are a variety of incentives for investing in a hybrid hot water heater.

Hybrid hot water heaters, also called heat pump water heaters, take a historically inefficient and energy-intensive mechanical process and transform it into an efficient, energy-saving option.

There are a variety of rebates, tax credits, deductions, and incentives for purchasing a hybrid hot water heater. These come from both the public and private sectors and apply to both residential and commercial properties.

Photo of the hybrid water heater in the First Attainable Home garage.

Why do Heat Pump Water Heaters Earn Incentives?

Heat pump / hybrid hot water heaters have a much higher energy efficiency than their non-heat pump counterparts. They achieve that lower carbon footprint by using the heat from the air outside to aid in heating the water. These water heaters are most effective in warmer climates where they can use the air outside to heat the water year-round.

Another major difference between a hybrid water heater and a standard water heater is it doesn’t run all the time. It is quite efficient at heating the water so, even though it has a tank, it doesn’t need to be using energy constantly to keep the water warm.

Because of these factors, hybrid water heaters can consume significantly less energy and therefore reduce energy costs. Over the course of its life, typically at least ten years, a hybrid heat pump can save a household $3,500.

Heat pump hot water heaters also have a longer lifespan than conventional water heaters. A hybrid water heater has an average life of 13-15 years, whereas a conventional water heater has an average life of 9-12 years.

Graphic of an AO Smith hybrid water heater with estimated yearly energy cost chart.
This is the AO Smith hybrid / heat pump water heater we put in Our First Attainable Home. You can read (and hear) more here.

What Tax Credits, Deductions, Incentives, and Rebates Exist for Hybrid Water Heaters?

There are a variety of great incentives that exist for installing a hybrid water heater. In fact, utilizing the list of perks below can significantly reduce the cost of buying a water heater.

Typically, a hybrid water heater can cost 2 to 3 times as much as a conventional electric water heater, which can be a big upfront cost for a lot of people. However, the rebates, tax credits, and incentives can bring the cost down to a more manageable amount.

Tax Credits

There is currently a federal tax incentive for installing hybrid water heaters. The incentive is $300, which is a fairly significant portion of the cost of a hybrid water heater. There are three criteria that must be met to qualify for this incentive by the IRS:

First, it must have a Uniform Energy Factor (UEF) of at least 2.2. The UEF measures the efficiency of the water heater and is a good threshold for knowing how effective the water heater will be.

Second, the water heater must be installed between December 31, 2017, and January 1, 2022. And finally, the hybrid water heater needs to be in the primary residence and must be existing. So, unfortunately, if you are a renter or a landlord, have a second home, or have a new build, you would not qualify.

Inflation Reduction Act – Heat Pump Water Heaters

With the very exciting recent update and passing of the Inflation Reduction Act, there is a relative windfall for this of us that want to upgrade to more energy-efficient systems.

At the time of this writing, some things are still being worked out. But as of right now, it looks like you can get as much as a $1,750 tax credit for switching to a heat pump hot water heater. Keep a close eye on the developments of the Act!


Rebates are a great way to earn cash back after purchasing a hybrid water heater. It is important to note that for a rebate, you must first purchase the unit, then apply for the rebate.

AO Smith

AO Smith offers pretty hefty rebates in conjunction with different states. Most of them have different criteria linked to the EnergyStar rating of the appliance, but besides that, it depends on the unit you purchase.

The rebates range in amount from $50 to $550 depending on location and unit. You can search by unit and location to estimate the rebate you will get here. This rebate applies to both residential and commercial properties.


Rheem has a similar program to AO Smith. The rebate amount is based on location and unit purchased, and can be worth up to $600. The average rebate amount is between $300 and $400. For your area, you can search by unit and location at this link. This rebate applies to both residential and commercial properties.

Bradford White

Bradford White is another major hybrid water heater manufacturer that has hefty rebates. They have a great search feature to filter by location and rebates average about $300. They also have benefits for using a certified Bradford White installer that is also based on unit and location. This rebate applies to both residential and commercial properties.


This rebate is not company-specific but based on the UEF of a hybrid water heater unit. The rebate is worth $400 and applies to hybrid water heaters that have a UEF of 3.0 or higher. It is important to note that any of the units that this rebate applies to should also qualify for the $300 tax credit, which only requires a minimum UEF of 2.2.

This rebate is available by state and will depend on where you live. It only applies to residential properties. The rebate amount may also change slightly depending on location. It does require that the appliance be purchased by a qualifying company or distributor.

The United States Energy Information Administration offers a lot of invaluable information for each state. This includes different links to energy websites for each state. You can also simply search online for the EnergyStar rebate and the name of your state.


When looking into purchasing a hybrid water heater, it is critically important to do research first. In order to qualify for the federal tax credit, company rebates, and EnergyStar rebates, there are certain minimum requirements.

This depends a lot on where you live and can include the date purchased, who it is purchased from, who installs it, the type of property it is installed on, and the energy efficiency of the unit.

Even though there is likely a good amount of research that will go into determining the water heater you should purchase, it will be a great addition to your home. The time spent researching could pay off in hundreds of dollars in tax credits and rebates.

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