Is a Tankless Water Heater Worth It? The Honest Numbers

Short answer: for most homes replacing a gas tank, a tankless water heater is not worth it on energy savings alone. It saves about $90 a year but costs about $2,000 or more extra to install, so it takes roughly 20 to 25 years to pay back. It can make sense if you want endless hot water, need the space, or will stay long enough to avoid buying a second tank. If you have an electric tank, a heat pump water heater usually saves far more.

Compare your own options in the tankless vs tank water heater calculator.

Running costs compared

A household using 55 gallons of hot water a day, heated by 67°F, at $1.43 a therm for gas and 18.2¢ per kWh for electricity:

20-year cost includes buying a replacement when a unit reaches its typical life (tanks about 12 years, heat pumps about 13, tankless about 20) plus energy at today's prices. Installed prices are 2026 planning figures; switching from a tank to tankless often costs more than a like-for-like swap.

Why the savings are smaller than you might expect

• Heating the water is most of the energy. A tank's standby losses are real but modest; a modern tank wastes only a fraction of its energy keeping water hot.
• Installation is the expensive part. Gas tankless units often need a larger gas line and new venting; electric tankless units can need 120 to 150 amps of new circuits, sometimes a panel upgrade.
• Maintenance. In hard-water areas, tankless units should be descaled once a year.

When tankless is worth it

• You run out of hot water with a tank and need back-to-back showers or a large soaking tub.
• Space is tight: a wall-mounted unit frees up a closet or garage corner.
• Your gas tank is near the end of its life and you plan to stay 15 to 20 years or more, so you avoid buying a second tank.
• You are building new, so the gas line and venting can be sized correctly from the start.

When it usually isn't

• Your current tank still works and you only want to save energy.
• You have an electric tank: electric tankless saves only a few percent, and large units may need expensive electrical work. A heat pump water heater saves about $480 a year instead.
• Your household uses little hot water, so there is less to save.

Things people don't expect

• Flow limits. A tankless unit is sized in gallons per minute. In winter, when incoming water is colder, it may only run two showers at once.
• "Cold water sandwich". A brief burst of cold water can occur when a tap is turned off and on again quickly.
• Power cuts. Gas tankless heaters need electricity for controls and fans, so they stop in an outage; many gas tanks keep working.
• No federal tax credit. The 25C credit for efficient water heaters ended for equipment installed after December 31, 2025. Check your gas or electric utility for rebates.

Frequently asked questions

Do tankless water heaters save money?

A little on energy, about $90 a year against a gas tank in our example, but the higher installation cost takes around 20 years or more to recover.

How long does a tankless water heater last?

Around 20 years with regular descaling, against about 10 to 12 years for a tank.

Is a heat pump water heater better than tankless?

For running costs, usually yes: it uses about a quarter of the electricity of a standard electric tank. It needs space, a room that stays above about 40 to 50°F and a condensate drain, and it cools the room it is in.

Sources

• ENERGY STAR, Uniform Energy Factor explained.
• US Department of Energy, tankless or demand-type water heaters.
• Installed prices: 2026 US cost guides (tank about $600 to $2,500; gas tankless about $2,100 to $5,600; electric tankless $1,400 to $3,000; heat pump $2,000 to $4,600).
• IRS, FAQs on the 2025 changes to section 25C.

Checked October 22, 2026.