The short answer
- A tank holds a reserve and is limited by its first-hour rating. A tankless unit never runs out but is limited by flow rate, which falls as incoming water gets colder.
- A whole-house gas tankless unit (199,000 Btu/h) delivers about 5.7 GPM at a 65°F rise, enough for two showers and a faucet. A 27 kW electric unit gives about 2.8 GPM and draws 112 amps.
- At 55 gallons a day, a condensing gas tankless saves about $110 a year over a basic gas tank. It costs $1,400 to $5,600 installed versus $600 to $3,100 for a tank, plus any gas line or vent work.
- Tankless units typically last 15 to 20 years, tanks 8 to 12, which narrows the price gap over time.
- In an electric home, a heat pump water heater is the bigger win: about $470 a year cheaper to run than a standard electric tank at 18.16¢ per kWh.
How each type works
A tank (storage) water heater keeps 30 to 80 gallons hot around the clock with a gas burner or electric elements. You can run several fixtures at once, but once the hot water in the tank is used up, you wait while it reheats. Its capacity is rated as the first-hour rating (FHR): how many gallons of hot water it can deliver in an hour starting with a full tank. It also loses some heat through the tank walls all day, called standby loss.
A tankless (on-demand) water heater heats water only as it flows through. A flow sensor fires a gas burner or electric elements when you open a tap. It never runs out, but it can only heat so many gallons per minute (GPM). The colder your incoming water, the fewer GPM it can deliver at a given temperature. Its rating is maximum GPM, measured by the federal test at a 67°F temperature rise.
Both are rated for efficiency with the uniform energy factor (UEF), the share of energy that ends up as usable hot water in a standard 24-hour test. The federal test draws a set volume per day (55 gallons for the "medium" pattern, 84 gallons for "high"), with water coming in at 58°F and leaving at 125°F.
| Type | Typical UEF | Federal minimum (before May 2029) |
|---|---|---|
| Gas tank, standard (40 to 50 gal) | about 0.58 to 0.70 | 0.58 for a 40-gal, medium draw |
| Gas tank, condensing (ENERGY STAR) | 0.81 to 0.86 or more | same as above |
| Gas tankless, non-condensing | about 0.81 to 0.87 | 0.81 |
| Gas tankless, condensing (ENERGY STAR) | 0.95 or more | 0.81 |
| Electric tank (resistance) | about 0.92 to 0.95 | 0.92 for a 50-gal, medium draw |
| Electric tankless | about 0.98 to 0.99 | 0.91 to 0.92 |
| Heat pump water heater (ENERGY STAR) | 3.30 or more | applies from May 6, 2029 |
Sizing: reserve vs. flow rate
Sizing a tank
Size a tank by its first-hour rating, not its gallons. Estimate your busiest hour. Three 8-minute showers back to back with 2.0 GPM showerheads use 48 gallons of mixed water. At a 105°F shower, about 70% of that comes from the water heater (the rest is cold water from the mixing valve), so roughly 34 gallons of hot water. Add a few gallons for a sink and you want an FHR of about 40 to 45 gallons. A dishwasher or a laundry load in the same hour pushes that higher. The FHR is printed on the yellow EnergyGuide label.
Sizing a tankless heater
Size a tankless unit by the flow of the fixtures you run at the same time and by the temperature rise, the gap between your incoming water and the temperature you want. Measure the incoming water at a cold tap in January; it can sit in the 40s°F in northern winters and much warmer in the South.
Btu per hour of output needed = 500 × GPM × temperature rise (°F)
The 500 is 8.34 pounds per gallon times 60 minutes. Worked example: two 2.0 GPM showers at once is 4 GPM. With 50°F incoming water and a 105°F shower, the rise is 55°F. You need 500 × 4 × 55 = 110,000 Btu/h of output.
A whole-house gas unit with 199,000 Btu/h input at 0.93 efficiency puts out about 185,000 Btu/h, which covers that easily. A 27 kW electric unit puts out 27 × 3,412 = 92,124 Btu/h, which is 3.35 GPM at a 55°F rise: one shower plus a weak second one. The table shows how flow drops as the rise grows:
| Temperature rise | Gas, 199,000 Btu/h | Electric, 27 kW | Electric, 18 kW |
|---|---|---|---|
| 35°F (warm climate, summer) | 10.6 GPM | 5.3 GPM | 3.5 GPM |
| 45°F | 8.2 GPM | 4.1 GPM | 2.7 GPM |
| 55°F | 6.7 GPM | 3.4 GPM | 2.2 GPM |
| 65°F | 5.7 GPM | 2.8 GPM | 1.9 GPM |
| 77°F (cold climate, winter) | 4.8 GPM | 2.4 GPM | 1.6 GPM |
For reference, a standard showerhead is capped at 2.5 GPM by federal law, WaterSense showerheads use 2.0 GPM or less, and kitchen and bathroom faucets are capped at 2.2 GPM.
Energy use and running cost
Because UEF is measured on the federal test, you can turn it into a yearly cost. At 55 gallons a day heated from 58°F to 125°F, a home needs 55 × 8.34 × 67 × 365 = about 11.2 million Btu of hot water a year. Divide by the UEF to get the energy the heater burns, then multiply by your price. We use $1.48 per therm of gas (the 2025 U.S. residential average from the EIA) and 18.16 cents per kWh (August 2026 U.S. average).
| Water heater | UEF used | 55 gal/day (medium) | 84 gal/day (high) |
|---|---|---|---|
| Gas tank, federal minimum | 0.58 | $286 | $437 |
| Gas tankless, non-condensing | 0.81 | $205 | $313 |
| Gas tank, condensing | 0.86 | $193 | $295 |
| Gas tankless, condensing | 0.95 | $175 | $267 |
| Electric tank | 0.92 | $649 | $991 |
| Electric tankless | 0.98 | $609 | $930 |
| Heat pump water heater | 3.30 | $181 | $276 |
What the table says:
- Gas tank to condensing gas tankless saves about $110 a year at 55 gallons a day and about $170 at 84 gallons.
- Electric tank to electric tankless saves only about $40 to $60 a year. An electric tank's standby loss is already small.
- Electric tank to heat pump water heater saves about $470 to $715 a year. That is the biggest jump in the table.
Real-world savings can come in under the lab figure. A tankless unit that fires for many short draws, like rinsing a cup, runs less efficiently than in the test.
Installation cost
Replacing like with like is the cheap job. Switching types is where the bills grow.
| Item | Typical cost |
|---|---|
| Tank water heater, 40 to 50 gal, installed | $600 to $3,100 |
| Tankless water heater, installed | $1,400 to $5,600 |
| Heat pump water heater, installed | $2,000 to $4,600 |
| Larger gas supply line | $350 to $2,000 |
| New vent, first time | $500 to $1,500 |
| New dedicated electrical circuit | $250 to $900 |
| Electrical panel replacement | $850 to $1,700 |
| Removing the old unit | $75 to $500 |
| Gas or electrical permit | $50 to $200 |
Why gas tankless installs cost more
- Gas line. A typical 40-gallon gas tank burns about 40,000 Btu/h. A whole-house tankless unit burns up to 199,000 Btu/h, about five times the gas at once. The 1/2-inch line that fed the old tank often can't carry it, and the gas meter may need to be checked as well.
- Venting. A tankless unit can't use the old tank's draft hood and chimney. Non-condensing units need sealed stainless steel vents; condensing units vent through PVC or polypropylene and need a drain for acidic condensate. The manufacturer's manual sets the materials and lengths.
- Power. Gas tankless units need a 120-volt outlet for their fan and controls.
Why electric tankless often doesn't work
A 27 kW electric tankless unit draws 27,000 ÷ 240 = 112.5 amps, usually on three double-pole breakers. That is more than half of a 200-amp service. Many homes would need a service upgrade, which can cost more than the heater, and the unit still struggles in a cold-water winter.
Advertisement
Lifespan and maintenance
HomeGuide puts typical life at 8 to 12 years for a tank and 15 to 20 years for a tankless unit. That matters for the math: over 20 years you will likely buy two tanks but one tankless heater.
Here is a 20-year example for a gas home at 55 gallons a day, using midpoints of the price ranges above. Two tanks at about $1,850 each plus $286 a year of gas comes to about $9,400. One condensing tankless at about $3,500, plus $1,000 for gas line and vent work, plus $175 a year of gas comes to about $8,000, before any descaling service. Close enough that your own quotes decide it.
Upkeep differs too:
- Tank: drain a few gallons once a year to flush sediment, test the temperature and pressure relief valve, and check the anode rod every few years; replacing a worn rod helps the tank last.
- Tankless: clean the inlet screen and, in hard water, flush the heat exchanger with a descaling solution on the schedule in the manual. Skipping it causes error codes and shortens its life.
- Heat pump: clean the air filter as the manual says, plus the usual tank care.
One more difference: a gas tankless heater needs electricity to run, so it stops in a power outage. A gas tank with a standing pilot keeps working. A small generator or battery can run a tankless unit; size one with the generator size calculator.
The third option: a heat pump water heater
A heat pump water heater is a tank with a small heat pump on top. It pulls heat from the surrounding air into the water, the way a refrigerator works in reverse. ENERGY STAR certified models have a UEF of at least 3.30, which means more than three units of heat for each unit of electricity, against about 0.92 for a standard electric tank. In our table that cuts the yearly cost from $649 to about $181.
The catches, from ENERGY STAR's buying guidance:
- It needs a space that stays between 40°F and 90°F all year, with about 1,000 cubic feet of air around it, such as a basement, garage in a mild climate or a large utility room. Some models can duct their air in and out.
- It cools and dehumidifies the room. That is a bonus in a hot garage and a cost in a heated basement in winter.
- In cold spaces or with very cold incoming water, it may switch to standard electric mode for a while, which raises energy use.
- It has a fan and compressor, so it makes some noise, and it reheats more slowly in heat pump mode than a resistance tank.
Most models need a 240-volt circuit. If you are replacing a gas tank and have no 240-volt circuit nearby, look at 120-volt plug-in models; ENERGY STAR certifies them at a UEF of 2.20 or more. Federal rules will soon push this way anyway: from May 6, 2029, most new electric tanks of 20 to 55 gallons must reach a UEF of 2.30, which in practice means a heat pump.
For a gas home, a heat pump water heater at $181 a year runs about $80 to $105 cheaper than a basic gas tank at average prices, and roughly the same as a condensing gas tankless. Local gas and power prices tip it one way or the other.
Which one should you buy?
Tankless
- Never runs out during long showers or a full house
- Saves about $110 a year over a basic gas tank at 55 gallons a day
- Lasts 15 to 20 years
- Wall-mounted, frees floor space
Tank
- Lowest price, simplest swap, same-day replacement
- Handles several fixtures at once up to its reserve
- Gas models with a standing pilot work in a power outage
- No gas line or vent changes when replacing like for like
- Gas home, tank still working: wait. Plan the decision now so you are not forced into the same tank on an emergency weekend.
- Gas home, big family or a large soaking tub: a condensing gas tankless or a condensing gas tank makes sense, if the gas line and vent path are reasonable.
- Electric home: a heat pump water heater, if you have the space. Electric tankless rarely pays off and strains the panel.
- Small household, low use: a standard tank is hard to beat on total cost; the savings from any upgrade are small.
Common mistakes
- Buying by gallons instead of first-hour rating. Two 50-gallon tanks can have very different FHRs.
- Sizing tankless for summer water. Use your coldest incoming water temperature, or showers go lukewarm in January.
- Reusing an undersized gas line. A starved burner throws error codes and can't reach its rated flow.
- Expecting instant hot water. Tankless doesn't shorten the wait at a far bathroom; the cold water in the pipe still has to clear. A recirculation pump does that.
- Ignoring the minimum flow. Many tankless units need a minimum flow to fire, so a trickle at the sink may stay cold.
- Skipping descaling in hard water. Scale is the most common reason tankless units fail early.
When to call a pro
Gas water heaters are a carbon monoxide risk if they are vented wrong, so hire a licensed plumber or gas fitter for any gas install, and keep a working CO alarm near sleeping areas. Most cities and counties require a permit for a water heater replacement. The installer should fit a temperature and pressure relief valve with a discharge pipe, add a thermal expansion tank if your water system has a check valve or pressure reducer, and strap the tank where local code requires it. Any new 240-volt circuit or panel work is a job for a licensed electrician.
To see what your current water heater adds to your power bill, use the electric bill calculator. If you plan solar panels, a heat pump water heater can soak up midday power; check the payoff with the solar payback calculator. For the bigger picture, read how to lower your electric bill.
Common questions
Is a tankless water heater worth it?
For a gas home it can pay off over its longer life, but slowly. At 55 gallons a day a condensing tankless saves about $110 a year over a basic gas tank, while costing more to install, often plus gas line and vent work. It is most worth it when you want endless hot water, have a large household or need the floor space.
How long does a tankless water heater last compared with a tank?
Tankless units typically last 15 to 20 years and tank water heaters 8 to 12 years, according to HomeGuide's 2026 cost guide. Hard water shortens both unless you flush the tank or descale the tankless unit on schedule.
What size tankless water heater do I need?
Add up the flow of the fixtures you run at the same time and find your temperature rise from incoming water to the temperature you want. Output needed in Btu per hour equals 500 × GPM × rise. Two 2.0 GPM showers with 50°F water heated to 105°F need about 110,000 Btu/h, which a whole-house gas unit covers and a 27 kW electric unit does not.
Can a tankless water heater run out of hot water?
It cannot run out, but it can fall short. If you open more fixtures than it can heat at your temperature rise, the water comes out cooler. That is most likely in winter, when incoming water is coldest.
Is a heat pump water heater better than a tankless one?
In a home with electric water heating, usually yes. At 55 gallons a day and 18.16 cents per kWh, a heat pump water heater costs about $181 a year to run, against about $609 for an electric tankless unit and $649 for a standard electric tank. It needs a space that stays between 40 and 90°F.
Does a tankless water heater work during a power outage?
No. Gas tankless units need electricity for their fan and controls, so they stop when the power goes out. A gas tank with a standing pilot keeps heating. A small generator or battery can run a gas tankless unit because it draws little power.
Sources
Prices and figures were checked in October 2026. Fuel and electricity prices change monthly; use your own bills for a decision.
- 10 CFR 430, Appendix E to Subpart B, federal water heater test: 58°F inlet, 125°F outlet, 55- and 84-gallon daily draw patterns
- 10 CFR 430.32, minimum UEF for water heaters before and after May 6, 2029; showerhead and faucet flow limits; checked October 2026
- ENERGY STAR, Residential Water Heaters Key Product Criteria, UEF, first-hour rating and GPM definitions
- ENERGY STAR, Heat Pump Water Heaters, installation space, temperature range and cold-weather notes
- EPA WaterSense, Showerheads, 2.5 GPM standard, 2.0 GPM WaterSense
- HomeGuide, water heater installation cost, updated January 2026: installed prices, gas line, venting, electrical, lifespan
- EIA, residential natural gas price, 2025 U.S. average $15.34 per Mcf, about $1.48 per therm
- EIA, Electric Power Monthly, Table 5.6.A, U.S. residential average 18.16¢ per kWh, August 2026
- Flow rates, yearly costs and the 20-year example are our arithmetic from the figures above; 1 kWh = 3,412 Btu and 1 therm = 100,000 Btu (EIA).