Is it best to just cap the two unused wires?

Whoa there a minute, please.

A standard water heated really only needs two conductors. That is if it is a 240V water heater.

If you have a dual pole 240V breaker for the heater and one wire (black) goes to one pole of the breaker, the other pole has a red wire on it, that is all you need.

At the water heater, you would connect black to one terminal and red to the other. Bare or green will go to the ground terminal and the white (neutral) can just be capped off.

If that does not solve your problem can you please send in some pictures?

Water heaters with four wire are often, or were, two separate circuits one for each element. One may be or was from a special utility meter or timer, that the electric utility controlled to turn off one circuit during peak usage hours.

Need to confirm what is feeding these four wires.