One incentive to take advantage of is the federal Residential Energy Efficiency Tax Credit. This credit is equal to 30 percent up to $1,500 of the cost of the new water heater and the installation costs. However, the federal government has somewhat high standards, so in order to qualify, your new system must have an Energy Factor of 0.82 or higher. Keep in mind that a system of this caliber will also qualify you for the $200 state rebate.