Answer: -This is nuts, $300 tax credit for " "Qualified Energy Property" is defined as: Natural gas, propane or oil water heater with EF or 0.80 or greater " according to http://www.fsec.ucf.edu/EPAct-05.htm and http://www.energystar.gov/index.cfm?c=products.pr_tax_credits . -It appears that a condensing water heater is required to meet the EF of 0.80 or greater. "The most efficient gas-fired storage water heaters have energy factors ranging from 0.60 to 0.65, corresponding to estimated gas use below 250 therms/year. Condensing water heaters have energy factors as high as 0.86." http://www.aceee.org/consumerguide/topwater.htm