A tankless water heater heats water on demand as it flows through the unit, eliminating the standby energy losses that plague traditional tank models. In 2026, the best gas tankless units deliver a Uniform Energy Factor (UEF) of 0.87–0.97, while top electric models reach 0.96–0.99 — meaning you can cut water-heating energy use by 24–34% compared to a standard 50-gallon tank heater.
Whether you're replacing an aging tank, building new, or chasing energy rebates under the Inflation Reduction Act, this guide covers every decision point: gas vs electric, sizing, installation, costs, maintenance, and the real-world payback math.
How Tankless Water Heaters Work
Traditional tank heaters keep 40–80 gallons of water hot 24/7, burning energy even when nobody's home. A tankless unit sits idle until you open a faucet. When it detects flow (typically 0.4–0.75 GPM minimum activation), a gas burner or electric heating element fires instantly, raising incoming water to your set temperature — usually 120°F.
The heating happens in seconds. Gas units use a modulating burner rated between 120,000 and 199,900 BTU/h. Electric units use 2–6 heating elements drawing 18–36 kW. Both adjust output based on flow rate and incoming water temperature, a feature called modulation.
Once you close the faucet, the unit shuts off. No pilot light on modern gas units (they use electronic ignition), no standby energy draw beyond a few watts for the control board.
Key Performance Metrics
Every tankless water heater is rated on three core specs:
Flow rate (GPM): How many gallons per minute it can deliver at a given temperature rise. A unit rated at 8.0 GPM at 35°F rise might only deliver 4.5 GPM at 77°F rise.
Temperature rise (°F): The difference between incoming cold water and your desired output. If groundwater enters at 50°F and you want 120°F, that's a 70°F rise.
Energy factor (UEF): How efficiently the unit converts fuel or electricity into hot water. Higher is better. Gas condensing units hit 0.90–0.97; non-condensing gas units land at 0.80–0.85; electric units reach 0.96–0.99.
Gas vs Electric Tankless: Head-to-Head Comparison
This is the biggest decision you'll make. Here's how gas and electric tankless units compare across every metric that matters:
When Gas Wins
Gas tankless heaters deliver significantly higher flow rates. A condensing gas unit like the Rinnai RU199iN can push 11.0 GPM at a 35°F rise — enough to run two showers, a dishwasher, and a sink simultaneously. That throughput is physically impossible with electric units limited by circuit amperage.
If your home already has a natural gas line and you live in a cold climate (groundwater below 50°F), gas is almost always the right choice for whole-home applications. The higher upfront cost pays for itself through sheer capability.
When Electric Wins
Electric tankless heaters cost less to buy, less to install, and require zero venting. A unit like the EcoSmart ECO 27 runs $350–$500 and fits in a closet. No combustion byproducts, no carbon monoxide risk, no annual burner maintenance.
For single-point applications (one bathroom, a kitchen sink, an RV), electric models are the clear winner. They're also ideal in mild climates where groundwater stays above 60°F, reducing the temperature rise burden and letting smaller units serve whole homes.
Climate rule of thumb: If your incoming water temperature is below 55°F in winter, you'll need a gas unit (or multiple electric units) for whole-home coverage. Check your groundwater temp on the DOE's groundwater temperature map.
Sizing Your Tankless Water Heater
Undersizing is the #1 mistake homeowners make. A tankless heater that's too small delivers lukewarm water when multiple fixtures run simultaneously. Here's the exact method HVAC contractors use:
Step 1: Calculate Peak Demand (GPM)
List every hot-water fixture that might run at the same time, then add up their flow rates:
Example: Two showers (2.0 GPM each) + one kitchen faucet (1.5 GPM) = 5.5 GPM peak demand.
Step 2: Determine Temperature Rise
Subtract your incoming groundwater temperature from your desired output temperature. Groundwater temperatures vary dramatically by region:
Step 3: Match to Unit Capacity
Find a unit that delivers your peak GPM at your required temperature rise. This is critical — manufacturers advertise flow rates at low temperature rises (often 35°F), which inflates the numbers.
Real-world example: A family of four in Chicago needs 5.5 GPM. Winter groundwater is 47°F, so the required rise is 73°F. A Rinnai RU199iN delivers 5.4 GPM at 77°F rise — barely enough. A Navien NPE-240A delivers 5.8 GPM at 77°F rise — a better margin.
Never size by advertised max GPM. A unit rated "11 GPM" only delivers that at a 35°F rise. At a 77°F rise (typical for northern climates), that same unit might deliver only 5 GPM. Always check the spec sheet for your actual temperature rise.
Sizing Formula
The BTU requirement for gas units follows this formula:
BTU/h needed = GPM × Temperature Rise × 500 ÷ Efficiency
For that Chicago family: 5.5 GPM × 73°F × 500 ÷ 0.93 = 215,860 BTU/h. This exceeds residential gas tankless capacity (max ~199,900 BTU/h), meaning they'd need either two units in parallel or a commercial unit.
For electric units, the kW formula is:
kW needed = GPM × Temperature Rise ÷ 5.86
Same scenario: 5.5 × 73 ÷ 5.86 = 68.5 kW. The largest residential electric tankless is ~36 kW, so you'd need two units — confirming why gas dominates in cold climates.
Installation Requirements
Installation complexity (and cost) varies dramatically between gas and electric. Here's what each type requires:
Gas Tankless Installation
Gas line: Most gas tankless units need a 3/4" gas supply line. If your existing line is 1/2", a plumber must run a new line — add $300–$800 to the project.
Venting: Non-condensing units need Category III stainless steel venting (expensive, rigid). Condensing units use PVC or CPVC (cheap, flexible). Venting can run vertically through the roof or horizontally through a wall. Maximum vent run is typically 40–60 feet for condensing, 25–40 feet for non-condensing.
Condensate drain: Condensing units produce acidic condensate (pH 3–4) that needs a drain line routed to a floor drain, utility sink, or exterior. Some jurisdictions require a condensate neutralizer.
Clearances: Minimum 12" from any window or door for outdoor exhaust termination. Check local code for specifics.
Electric Tankless Installation
Electrical panel: This is the deal-breaker for many homes. A 27 kW electric tankless draws 112.5A at 240V. Most homes have 200A panels, and after existing loads, there may not be 100+ amps available. A panel upgrade from 100A to 200A costs $1,500–$3,000.
Wiring: Large electric units need 2–3 separate 40–50A circuits with #6 or #8 AWG copper wire. Wire runs from the panel to the heater location can cost $300–$600 each.
No venting: This is the big advantage. No penetrations through walls or roof, no carbon monoxide risk, no combustion air requirements.
Permit note: Nearly all jurisdictions require a permit for tankless water heater installation. Gas units require both plumbing and gas-line permits. Electric units may require an electrical permit if new circuits are added. Budget $50–$200 for permit fees.
Tankless Water Heater Costs in 2026
Total installed costs range from $1,100 for a basic electric point-of-use unit to $5,500+ for a premium whole-home gas condensing system:
Federal Tax Credits and Rebates (2026)
The Inflation Reduction Act continues to offer a 30% tax credit (up to $2,000/year) for qualifying high-efficiency water heaters. To qualify for the tankless credit, the unit must have a UEF of 0.95 or higher — which means only condensing gas and electric models qualify.
Additionally, the High-Efficiency Electric Home Rebate Act (HEEHRA) offers up to $1,750 for qualifying heat pump or electric tankless water heaters for income-eligible households. Check with your state energy office for stacking opportunities with utility rebates.
Maintenance and Lifespan
Tankless heaters last 15–20+ years with proper maintenance — roughly double a tank heater's 8–12 year lifespan. But they're not maintenance-free.
Annual Descaling (Critical)
Mineral buildup from hard water is the #1 killer of tankless units. Scale deposits reduce heat transfer efficiency, lower flow rates, and eventually trigger error codes. In areas with water hardness above 7 grains per gallon (GPG), descale every 6–12 months.
DIY descaling kit cost: $30–$60 (includes a submersible pump, two hoses, and 2–4 gallons of white vinegar or commercial descaler). The process takes about 45 minutes.
Professional descaling: $100–$200 per visit.
Gas-Specific Maintenance
Gas units need an annual burner inspection. Dust, spider webs, and debris can clog the burner or the air intake, causing ignition failures or incomplete combustion. A tech should also check the heat exchanger for soot, inspect the venting system, and verify CO levels.
Extending Lifespan
Install a whole-house water softener if your hardness exceeds 10 GPG. Add a sediment pre-filter upstream of the unit. Use the unit's internal temperature setting rather than mixing valves when possible to minimize thermal cycling.
Real-World Examples
Example 1: New Construction in Houston, TX
Home: 2,400 sq ft, 3 bathrooms, family of 4. Groundwater temp: 68°F in winter. Peak demand: 5.5 GPM.
Unit chosen: Rinnai RU160iN (condensing, 160,000 BTU/h). Delivers 7.5 GPM at a 52°F rise — plenty of headroom. UEF: 0.93.
Total installed cost: $3,100 (unit: $1,400, labor: $1,100, gas line upgrade: $400, venting: $200). After the 30% federal tax credit on the unit: $2,680 effective cost.
Annual operating cost: ~$230/year on natural gas, down from $380/year with their old 50-gallon tank. Payback period: 7.2 years.
Example 2: Condo Retrofit in Phoenix, AZ
Home: 1,100 sq ft condo, 1 bathroom, couple. Groundwater temp: 65°F. Peak demand: 3.5 GPM.
Unit chosen: EcoSmart ECO 27 (electric, 27 kW). Delivers 3.5 GPM at 55°F rise — exact match for demand. UEF: 0.97.
Total installed cost: $1,800 (unit: $480, electrician: $900, permits: $120, misc: $300). Panel had capacity — no upgrade needed.
Annual operating cost: ~$190/year on electricity at $0.12/kWh. Previous tank: $310/year. Payback period: 5.8 years.
Example 3: Large Home in Minneapolis, MN
Home: 3,800 sq ft, 4 bathrooms, family of 6. Groundwater temp: 40°F in winter. Peak demand: 8.0 GPM.
Unit chosen: Two Navien NPE-2 240A units in parallel (condensing, 199,900 BTU/h each). Combined capacity: 10+ GPM at 80°F rise. UEF: 0.96.
Total installed cost: $7,800 (two units: $4,000, labor: $2,200, gas line: $600, venting: $500, recirculation system: $500). After tax credits: $6,600 effective cost.
Annual operating cost: ~$480/year. Previous 75-gallon tank: $720/year. Payback period: 11.5 years. Longer payback, but the family gets unlimited hot water and reclaims 12 sq ft of floor space.
Example 4: Vacation Cabin in Asheville, NC
Home: 900 sq ft cabin, 1 bathroom, seasonal use. Groundwater temp: 52°F. Peak demand: 2.5 GPM.
Unit chosen: Rheem RTEX-18 (electric, 18 kW). Delivers 2.7 GPM at 68°F rise. UEF: 0.99.
Total installed cost: $1,100 (unit: $320, electrical work: $600, permits: $80, misc: $100).
Annual operating cost: ~$80/year (seasonal use only). Previous tank wasted $200/year maintaining temperature even when cabin was empty. Payback in 3.1 years — and no frozen/burst tank risk since there's nothing to freeze.
Common Misconceptions
"Tankless = instant hot water." False. The unit heats water instantly, but you still wait for hot water to travel through the pipes from the heater to your faucet. A unit 30 feet from your shower still means 10–15 seconds of cold water. A recirculating pump solves this.
"Tankless can't keep up with high demand." Only true if undersized. A properly sized gas condensing unit handles 3–4 simultaneous fixtures without flinching.
"Electric tankless are always cheaper to run." Depends on local utility rates. At $0.15/kWh electricity and $1.20/therm gas, a gas condensing unit costs about the same per gallon of hot water as electric. Below $0.10/kWh, electric wins.
"Tankless heaters need no maintenance." Wrong. Without annual descaling, mineral buildup can destroy a $2,000 unit in 5–7 years instead of the expected 20.
Key Takeaways
- Gas condensing is best for whole-home use in cold climates (UEF 0.90–0.97, up to 11 GPM)
- Electric is best for point-of-use, mild climates, or homes without gas (UEF 0.96–0.99, up to 5.5 GPM)
- Size by temperature rise, not advertised max GPM — cold-climate homes need significantly more capacity
- Budget $1,500–$5,500 installed for most residential applications in 2026
- Expect 24–34% energy savings vs a standard tank, with a 5–12 year payback period
- Descale annually — it's the single most important maintenance task
- Check IRA tax credits — 30% up to $2,000 for units with UEF ≥ 0.95
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