Short answer (updated November 1, 2026)
No federal rebate or tax credit pays to replace a gas water heater in 2026. Since May 29, 2026, the federal HEAR rebate (renamed High-Efficiency Electric Home Rebates) no longer pays for replacing a gas, propane, or oil water heater; it only covers replacing an existing electric one. The federal tax credit also ended for installs after December 31, 2025. What is left for gas replacements is utility and state money: 7 programs in our data explicitly pay for switching from gas. Operating cost still favors the heat pump in most places: about $154/yr versus $273/yr for a gas tank at U.S. average prices (EIA, 12-month avg. through Aug 2026).
What changed in 2026
Federal tax credit (25C): ended for equipment placed in service after December 31, 2025. There is no federal tax credit for a 2026 installation. Federal HEAR rebate: DOE Program Notice 26-2, effective May 29, 2026, removed fuel switching. The up to $1,750 rebate now applies only when the heat pump replaces an existing electric water heater, or in new construction. States that had launched had three months to update their programs; reservations approved earlier can still be paid. Read the DOE notice.
States where HEAR currently offers a heat pump water heater rebate (for electric-to-electric replacements): Arizona, District of Columbia, Indiana, Michigan, New York, North Carolina, West Virginia, Wisconsin.
Rebates that still pay for switching from gas
These state and utility programs explicitly accept, or require, replacing a gas, propane, or oil water heater. Amounts and terms change often; confirm on the program site before you buy.
| State | Program | Amount | Gas replacement |
|---|---|---|---|
| Alabama | Alabama Power Hybrid (Heat Pump) Water Heater Rebate | $600 when switching from a gas water heater | Gas replacements only |
| California | SMUD Heat Pump Water Heater Rebate | $3,000-$4,000 gas-to-electric (by tank size); $1,000 electric-to-electric | Gas replacements qualify |
| District of Columbia | DCSEU Residential Heat Pump Water Heater Rebate | $750-$1,000 electric-to-electric; $1,200-$1,600 gas-to-electric | Gas replacements qualify |
| Maryland | EmPOWER Maryland Utility Heat Pump Water Heater Rebates | Up to $1,600 (BGE); other utilities vary | Gas replacements qualify |
| Massachusetts | Mass Save Heat Pump Water Heater Rebate | $750 per unit (standard/120V); $1,500 per split system | Gas replacements qualify |
| Rhode Island | Clean Heat Rhode Island Heat Pump Water Heater Incentive | $2,500 per system | Gas replacements only |
| Utah | Rocky Mountain Power Wattsmart Heat Pump Water Heater Rebate | $350 | Gas replacements qualify |
Programs in our data that exclude gas replacements: NorthWestern Energy Heat Pump Water Heater Program (Montana); NV Energy PowerShift Heat Pump Water Heater Incentive (Nevada); Rhode Island Energy Heat Pump Water Heater Rebate (Rhode Island); Dominion Energy South Carolina Heat Pump Water Heater Rebate (South Carolina); Rocky Mountain Power Wattsmart Heat Pump Water Heater Rebate (Wyoming).
What the conversion involves
1. Power. Most heat pump water heaters need a dedicated 240V, 30A circuit (about $300 to $1,100 to add). A 120V plug-in model can avoid this. 2. Condensate. Heat pumps make water as they run and need a drain line or condensate pump ($100 to $500). 3. Space and air. Plan for about 700 cubic feet of air around the unit, or a louvered door or duct kit. 4. Gas line and vent. The gas line is capped and the flue is removed or sealed; if a furnace shares the flue, it may need a liner. 5. Size. Heat pumps recover more slowly than gas, so many installers go up one tank size, or use a mixing valve.
Typical total installed cost for a 50 to 65-gallon heat pump: about $3,600 (range $2,000 to $4,500), before rebates.