Water Heater Tax Credit in 2026: What Ended and What Remains

The federal Energy Efficient Home Improvement Credit, often called 25C, was cut short by the 2025 budget law (the One Big Beautiful Bill Act). The IRS instructions for Form 5695 say you cannot claim the credit for expenditures or property placed in service after December 31, 2025. What matters is the date the equipment was installed and ready for use, not the date you signed a contract or paid a deposit. A water heater that goes into service on January 1, 2026 or later does not qualify, however it was ordered.

That answers the question many North Texas homeowners now ask about tankless and heat pump models. For a unit installed in 2026 there is no federal credit to plan around, so price the purchase on its own merits. Our tankless cost page shows the economics without any credit.

A qualifying unit placed in service in 2025 can still be claimed on your 2025 return. That includes a late filer or an extension filer who has not yet submitted the return. You claim the credit on Form 5695, Part II, and the result carries to Schedule 3 of Form 1040. The credit is nonrefundable, so it can only reduce your tax to zero, and any unused amount does not carry forward.

Starting with 2025, the IRS requires a qualified manufacturer identification number, or QMID, for each item of specified property, including water heaters. The number comes from the manufacturer, not from the model number, the contractor's license or the ENERGY STAR certificate. Without a QMID the credit cannot be claimed, so ask the manufacturer or check its tax credit page. Keep the final invoice showing the install date, proof of payment, and the manufacturer's certification statement. A tax professional can tell you how the rules apply to your return.

Utility and state programs are the remaining sources of help, and they change without notice, so treat every figure here as something to confirm before you buy.

• Oncor, the electric delivery company for most of DFW. A published rebate summary lists up to $500 for a heat pump water heater under the Take A Load Off Texas program, first come, first served and subject to funding. We could not verify the current terms on Oncor's own site, so check before you rely on it.
• Texas SECO HOMES and HEAR programs. These federally funded home energy rebate programs are in planning, and the Texas Comptroller's page, last updated August 21, 2026, says rebates are not yet available and no launch date has been set. HOMES is described as open to all income levels with rebates up to $8,000, and HEAR is for income-qualified households with rebates up to $14,000. The page does not name water heaters or give an amount for them.
• Retail electric providers, CoServ and your gas utility. Some offer seasonal programs. We could not confirm a current water heater rebate from Atmos Energy or CoServ, so ask your provider.
• Manufacturer promotions. Rheem, A. O. Smith and others run periodic rebates, usually through distributors. They are not tied to tax law and are worth asking about at purchase.

Do not delay a failed heater to wait for a credit. The 25C credit is gone and the state programs have no start date. If you are replacing a tank heater, the answer is the same as it was before: choose on installed price, running cost and the place where the heater will sit. A heat pump model still lowers electric bills in a Texas home, and any rebate that appears later can be added to the savings, but it should not be the reason to buy.

For a 2025 install, gather the QMID and your invoice now, before you file. Questions about your return go to a tax professional.