Heat pump water heaters extract energy from the surrounding air to heat water for domestic use; this means they will both cool and dehumidify the space around them, and are therefore best suited to basements or other non-living spaces. They also contain electric resistance heating elements to supplement the heat pump when hot water is in high demand. See this guide from Efficiency Vermont for more information on the various types of water heaters.

State Incentives

  • Efficiency Vermont offers a $600 discount for heat pump water heaters, plus an additional $200 for income-qualified customers.
  • The State of Vermont has allocated $5 million to create a “Switch and Save” program for low-income Vermonters to install heat pump water heaters at little to no cost. The program is currently under development by the Department of Public Service. 

Federal Incentives

  • 30% up to $2,000 tax credit per year. (Note: You can only claim up to $2,000 total per year—not per piece of eligible equipment. So if you installed multiple eligible pieces of equipment in the same year, your maximum credit value is still $2,000).
  • 30% up to $600 tax credit available for electrical panel upgrade if combined with heat pump water heater installation.
  • The High Efficiency Electric Home Rebate Act (HEEHRA) covers 100% of project costs up to $1,750 for low-income households (less than 80% AMI) and 50% of project costs for moderate-income households (80-150% of AMI). The State of Vermont is still developing its HEEHRA program. It is expected to open in late 2024 or early 2025. You can get updates on the program here.

Updated March 2024