Water Heater Cost Calculator
Compare a heat pump, gas tankless, gas tank, and electric water heater on upfront, operating, and lifetime cost, at your actual rates and climate.
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Household & Location
Equipment Costs (Installed)
Incentive
Lowest 10-year cost
Heat pump water heater
$5,004
over 10 yrIt costs more upfront than the cheapest option, but recovers that gap in about 2 years at these inputs.
All four options, ranked by 10-year total cost
Net upfront
$2,500
To run / year
$224
Energy / year
798 kWh
Net upfront
$1,500
To run / year
$381
Energy / year
159 therms
Net upfront
$3,500
To run / year
$254
Energy / year
106 therms
Net upfront
$1,300
To run / year
$850
Energy / year
3,037 kWh
Lifetime cost is net upfront (after the HPWH credit, if applied) plus operating cost over 10 years, with each fuel escalated at its own rate. Recommended sizes are starting points; confirm sizing with an installer.
Why a heat pump can run cheaper
A heat pump water heater moves heat instead of making it. At these inputs its effective COP of 3.5 means it delivers about 3.5 units of heat per unit of electricity, so it runs cheaper than an electric resistance tank here. Whether it beats gas depends on your rates and the IRA credit, which the ranking above reflects.
When gas still wins
Where gas is cheap relative to electricity, a gas option can win over 10 years. At your rates the electric heat pump still comes out ahead, but the gap shrinks as electricity gets pricier.
Climate and the cold-water penalty
In Zone 3, incoming water is about 62°F, so every option works harder to reach 120°F. Cold also derates the heat pump: its rated COP drops to an effective 3.5 here, which is built into the numbers above.
The Real Question: Cheapest to Install, or Cheapest to Own?
A water heater is one of the few appliances where the cheapest option to buy is often the most expensive to own. A standard electric resistance tank is the lowest sticker price on the shelf, but it turns one unit of electricity into one unit of heat, so it runs up the highest energy bill year after year.
A heat pump water heater flips that. It moves heat from the surrounding air into the tank instead of generating it, so it delivers three to four units of heat per unit of electricity. It costs more upfront, and the federal Section 25C credit that previously reduced that gap expired December 31, 2025. State and utility rebates still apply in many states. The low running cost usually makes it the cheapest to own over a 10-year life. Gas options sit in between, and where gas is cheap relative to electricity, they can still win.
This calculator does not assume a winner. It runs the same hot-water demand through all four options at your actual rates and climate, then ranks them by total cost so you can see which is cheapest to own for your situation, not the national average.
How Efficiency Is Measured (UEF and COP)
Tanks and tankless units are rated by Uniform Energy Factor (UEF), the DOE measure of how much of the energy they consume ends up in the hot water. A standard gas storage tank is around 0.60 UEF; a condensing gas tankless is around 0.90; an electric resistance tank is around 0.92.
A heat pump water heater is measured differently because it can exceed 100% efficiency: it is rated by Coefficient of Performance (COP), typically 3.0 to 4.0. A COP of 3.5 means it delivers 3.5 units of heat per unit of electricity. That is the whole reason it can be the cheapest to run even when electricity costs more per unit of energy than gas.
COP falls in cold air, so this calculator derates the heat pump for your climate zone rather than using the best-case rated number.
Federal Credit Status and State Incentives
The IRA Section 25C credit for heat pump water heaters terminated for systems placed in service after December 31, 2025 under the One Big Beautiful Bill Act. For 2025 and earlier installs, the credit provided 30% of installed cost capped at $2,000. There is no current federal credit for residential heat pump water heaters installed in 2026. (Source: IRS.gov, OBBBA 2025.)
State and utility rebates are independent of the federal credit and remain available in many states. Check the DSIRE database (dsireusa.org) for current programs in your state. Some states offer $500 to $2,000 on qualifying heat pump water heaters, which can still meaningfully reduce the upfront cost even without the federal credit.
Frequently Asked Questions
Which water heater is cheapest: heat pump, tankless, gas, or electric?
It depends on your local electricity and gas rates, your household size, and your climate. As a rule of thumb, a heat pump water heater is usually the cheapest to run because it delivers 3 to 4 units of heat per unit of electricity. The federal Section 25C credit that reduced its upfront cost expired December 31, 2025 (One Big Beautiful Bill Act), so state and utility rebates are now the main source of upfront cost reduction for 2026 installs. Where natural gas is cheap relative to electricity, a gas tankless or gas storage tank can win over a 10-year horizon. A standard electric resistance tank is the cheapest to install but almost always the most expensive to operate. This calculator ranks all four at your actual rates so you can see which wins for you.
Is there a federal tax credit for a heat pump water heater in 2026?
No. The IRA Section 25C credit for heat pump water heaters terminated for systems placed in service after December 31, 2025 under the One Big Beautiful Bill Act. For systems installed on or before that date, the credit provided 30% of installed cost capped at $2,000. There is no current federal credit for residential heat pump water heaters installed in 2026. Some states and utilities offer their own rebates; check the DSIRE database (dsireusa.org) for programs in your state. (Source: IRS.gov, OBBBA 2025.)
Do heat pump water heaters work in cold climates?
Yes, but their efficiency drops in cold spaces because they pull heat from the surrounding air. A unit rated at COP 3.5 in a warm garage might deliver an effective COP closer to 2.5 in an unheated basement in a cold climate. This calculator derates the heat pump COP by your climate zone, the same way our heat pump heating calculator does. They also slightly cool and dehumidify the space they sit in, which is a bonus in summer and a small penalty in winter if that space is heated.
Is a tankless water heater worth the extra cost?
A tankless (on-demand) unit never runs out of hot water and avoids the standby losses of keeping a full tank hot, so it runs a bit cheaper than a comparable storage tank on the same fuel. But it costs more to install, especially a gas tankless that needs upgraded venting and a larger gas line. Whether the operating savings recover that premium depends on your usage and rates, which is exactly what the 10-year comparison above shows.
How is the operating cost calculated?
The energy to heat water is its weight times the temperature rise: gallons used per day times 8.34 pounds per gallon times the difference between the incoming cold-water temperature and your setpoint, summed over the year. That useful heat is divided by each unit's efficiency (the DOE Uniform Energy Factor for tanks and tankless, or the effective COP for the heat pump) to get the energy it actually consumes, then multiplied by your electricity or gas rate. Colder climates have colder incoming water, so every option uses more energy there.
Related reading: Home Electrification Payback Calculator, for electrifying the whole house.
Disclaimer: This calculator is for educational and illustrative purposes only. Efficiency values (UEF and COP) and the climate-based inlet-water and COP adjustments are typical averages and may not reflect your specific equipment, installation space, or microclimate. Energy rates, equipment costs, incentives, and tax credits change. The federal Section 25C credit terminated for systems placed in service after December 31, 2025 (One Big Beautiful Bill Act); 2026 installs do not qualify. Installed costs vary by contractor, venting, and electrical or gas service. Nothing on this page constitutes financial, tax, or energy advice. See our full disclaimer.
For educational and illustrative purposes only. Not financial, tax, or investment advice. Results depend on the accuracy of your inputs and on assumptions that may not reflect your actual situation. ForestMatters, LLC is not a registered investment advisor. Full disclaimer.
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