Need more information...

Is it in a bathroom or a utility room?

Gas or Electric?

Gas, it's in it's own little closet off the kitchen.

If you do not alter it grandfathering applies.

The water heater is 9 years old and the 2nd one we've replaced in the last 15 years. Our water used to be really hard and was notorious for killing appliances, but they switched from well to lake water about 8 years ago and our co-op built a new treatment plant a few years ago so I assume it's just like any other foul smelling water now.

I don't know how long a water heater is supposed to last. I didn't even know we were supposed to drain it every year until the man at Lowe's told me. He's also the one who told me everything had to be brought up to code if we replaced it.

If that is true, now would be the time to do it if it requires tearing off sheetrock to run a pipe outside. Easier for us than a neighbor who doesn't have a straight line of walls leading to an outside wall, but still a pain.

I'm even wondering if it would be better to put in tankless if we have to make a lot of changes.

Be sure to install a good quality valve on the new tank. The ones that are included are a pain if you flush them like you should.

This is a good site if you want to learn about water heaters:

http://www.waterheaterrescue.com

Oh & I decided against tankless. I need it to work even when the electricity is off.

The next question is what kind of tile? If the water heater is installed in an attic or over a wood floor you are required to have a pan with a 3/4" diameter drain line to an approved indirect waste receptor or outdoors in a conspicuous place.

If it is installed over a floor that is not subject to water damage, such as concrete or ceramic tile it does not require a pan.

All water heaters are also required to have a TPRV (Temperature & pressure relief valve) with a full bore drain line to an approved indirect waste receptor or outdoors EXCEPT: in instances where a gravity flow drain line cannot be achieved, such as below grade in a basement, the TPRV may be removed and if it is a gas water heater a "Watts 210 gas valve" is installed, then the gas supply line is run to the Waats 210 gas valve, then to the water heater gas control. In this manner if the temperature in the tank exceeds 210degF or if the pressure exceeds 150psi the Watts 210 gas valve closes and shuts off the gas supply to the burner.

When a Watts 210 gas valve is installed you must also go to any convenient location in the structure and install a Pressure Relief Valve on the hot water system where the Pressure Relief Valve can be drained to an approved indirect waste receptor or outdoors.

In the case of an electric water heater you only need the pressure relief valve because the upper thermostat in an electric water heater has the required thermal shutdown function.