How much:

30% of the cost (including installation/labor costs), up to $1,500.

Timing:

Tax credit in effect in 2009 and 2010. Must be installed in your "principal residence" between January 1, 2009 and December 31, 2010.

Details:

Installed after Feb 17, 2009: must have an Energy Factor of at least .82 OR a thermal efficiency of at least 90%.

Installed Jan 1, 2009 - Feb 17, 2009: must have an Energy Factor of at least .80

Find qualified models:

There are several types of gas, oil, and propane water heaters:

1) Storage tank. There are NO residential storage tank water heaters that can qualify for the tax credit because none can meet the Energy Factor requirement of .82. However, there are some commercial storage tank water heaters that can qualify for the tax credit because they have a thermal efficiency of greater than 90%. These models are larger than what is typically considered a residential unit and may not have the standard safety features of residential models.

2) Tankless. For a partial list of tankless water heaters that qualify for the tax credit:

• go to the Air-Conditioning, Heating, Refrigeration Institute (AHRI)
• Scroll down to "Residential Gas, Oil, Propane Water Heater" in the chart (2nd to last row)
• Click on the link in the last column
• Select "Advanced Search"
• For "Heater Type" choose "Instantaneous"
• For "Tax Credit Eligible" choose "Yes" (toward the bottom of the screen)
• Fill in any other information you know to narrow your search (like "energy source")
• Click "Search Database"

3) Gas condensing. Residential gas condensing water heaters are not on the market yet.  The tax credit expires at the end of this year, so you may want to explore other options (tankless or solar) if you are interested in getting the tax credit. There are some commercial gas condensing water heaters that can qualify for the tax credit. These models are larger than what is typically considered a residential unit (over 75,000 BTU) and may not have the standard safety features of residential models.

How to apply:

File Tax Form 5695 with your tax return. Enter the cost of your qualified water heater on line 3a, "Energy efficiency building property" (includes water heaters, heat pumps, and central air conditioners).

You must have a Manufacturer's Certification Statement to qualify.