Energy Star

As provided for under the "Federal Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010" signed into law on December 17, 2010, the U.S. Internal Revenue Service (IRS) now provides consumers with federal tax credits on home improvements including specified energy-efficient home improvements including qualifying, residential water heaters, placed in service from January 1, 2011 through December 31, 2011 in a homeowner's primary residence, and meet the criteria of "Qualified Products" as set forth by Section 25C of the Internal Revenue Code.

The tax credit for qualifying energy improvements such as the installation of Rinnai tankless water heaters, is 10% of the full purchase and installation price up to a maximum credit of $300.

For more information on the bill, check out the U.S. Department of Energy website.

What is a tax credit?

A Tankless Water Heater Tax Credit is not received when you buy the product, like an instant rebate. A Tax Credit on Water Heaters is claimed on your federal income tax form at the end of the year. The credit then increases the tax refund you receive or decreases the amount paid in.

Tax credits vs. tax deductions.

In general, a tax credit is more valuable than a similar tax deduction. A tax credit reduces the tax you pay, dollar-for-dollar. Tax deductions, such as those for home mortgages and charitable giving, for example, lower your taxable income. If you are in the 30 percent tax bracket, your income tax is reduced by 30 percent of the value of a tax deduction. But a tax credit reduces your federal income tax by 100 percent of the amount of the credit.

For more information on Federal Tax Credits for Energy Efficiency, click here.