How to Save Money on Tankless Water Heater Installation
Tankless water heaters cost more upfront than traditional tank heaters, but several incentives and strategies can significantly reduce the effective cost. Here is how to minimise what you pay without compromising on performance.
Updated 28 March 2026
1. Claim the Federal Tax Credit
The Inflation Reduction Act extended and enhanced federal tax credits for energy-efficient home improvements including water heaters. For qualifying tankless water heaters, the credit is 30% of the cost up to a maximum of $600 per year through 2032.
Qualification requirements
- + Must be installed in your primary residence
- + Unit must have an Energy Factor (EF) of at least 0.82 (gas) or 2.0 (electric heat pump)
- + Must be ENERGY STAR certified
- + Must be a new installation or replacement in an existing home
- + Claim on IRS Form 5695 with your annual tax return
2. Check Utility and State Rebates
Many utilities and state energy programs offer additional rebates on top of the federal tax credit. These vary widely by location and are separate from the federal credit.
Where to find rebates
- DSIRE database (dsireusa.org): comprehensive state and utility incentives
- Your local utility's website (search 'rebates' or 'efficiency programs')
- Energy Star rebate finder tool (energystar.gov/rebate-finder)
- Your state energy office website
Typical rebate amounts
- Gas utility rebates: $50 to $300 per unit
- Electric utility rebates: $100 to $500 per unit
- State weatherization programs: variable
- Low-income programs: may cover full cost
Some rebates require purchasing the unit from an approved list or having it installed by a participating contractor. Check the requirements before buying to avoid missing out on a rebate that requires pre-approval.
3. Do Not Oversize
Oversizing is a common and expensive mistake. A unit with 50% more capacity than you need can cost $300 to $600 more upfront without delivering any practical benefit for typical household use.
Calculate your actual peak flow rate using the sizing guide before getting quotes. Contractors sometimes upsell the largest unit in their inventory. If you know you need a 6 GPM unit, you can confidently decline an 8 GPM unit and the cost that comes with it.
Cost increase by size (gas tankless example)
| Unit size | Unit cost | Installed |
|---|---|---|
| Small (110,000 BTU / 5 GPM) | $500 to $800 | $1,000 to $1,800 |
| Medium (150,000 BTU / 7 GPM) | $700 to $1,000 | $1,200 to $2,200 |
| Large (199,000 BTU / 9 GPM) | $900 to $1,500 | $1,500 to $3,000 |
4. Use Point-of-Use Units for Specific Needs
If your primary hot water issue is a long wait for hot water at a remote fixture (kitchen sink far from the water heater, guest bathroom), a small electric point-of-use unit can solve the problem for $100 to $300 installed rather than replacing the whole-house system.
Point-of-use tankless heaters are small electric units (3 to 10 kilowatts) installed under a sink or near a specific fixture. They require a 240-volt dedicated circuit but are otherwise simple to install. They heat only the water for that fixture, so there is no wait for the water to travel from a distant central heater.
5. Compare Multiple Installer Quotes
Installation labor rates vary significantly between plumbers and markets. Getting three quotes for the same job (specify the same unit model and any required infrastructure upgrades) typically reveals a price spread of $300 to $800.
What to specify when getting quotes
- The specific unit model you want (or a comparable minimum spec)
- Whether a gas line upgrade is needed
- Venting type and routing requirements
- Permit costs (required in most jurisdictions)
- Removal and disposal of the existing water heater
What drives high installation quotes
- Gas line upgrade or extension
- New venting through exterior wall (especially stainless)
- Electrical panel upgrade for electric units
- Permit and inspection fees
- Remote or difficult access location
Ask each plumber to itemise the quote so you can see where costs come from. If one quote is significantly lower, ask whether it includes all required infrastructure work. Sometimes low quotes exclude permit fees or assume infrastructure that will need upgrading.
6. Address Gas Line Upgrades Carefully
Gas line upgrades are the single largest variable cost in tankless installation for gas units. The required 3/4-inch or 1-inch supply line to support 199,000 BTU units may cost $500 to $2,000 to install depending on run length and routing.
Before committing to a high-BTU gas unit, ask your plumber to assess whether the existing gas supply can support a slightly smaller unit. A 150,000 BTU unit (instead of 199,000) might work adequately for your household and require less infrastructure upgrading. The difference in upfront cost plus infrastructure can be $500 to $1,500.
Tax credit information is based on the Inflation Reduction Act provisions as of early 2026. Tax law is subject to change. Confirm your specific eligibility with a tax professional. Cost estimates are typical US market ranges. Actual costs depend on local labor rates, existing infrastructure, and specific unit selection.