I have a.O Smith Gas Water Heater. It was installed in 1991 and still works great. I am wondering why the hot water comes out of the outlet ( inlet ) labeled COLD on the top of the heater. Of course the labeled hot water inlet is supplying the cold water. The shut off valve is also on the pipe that is supplying hot water. Was this unit just installed incorrectly? Does it effect the functionality? I have never has a problem with hot water supply. Thanks

From your description the heater was installed with supply and draw reversed. It does affect the functionality of the heater, you are drawing from the dip tube near the bottom of the tank. Cold water is entering at the very top of the tank and sinks into and mixes with the hot. This would make your heater burn more fuel to maintain the set temp. I'd reverse them and might consider a replacement heater at this time. Its 21 years old so not much more life and your are going to do at least 50% of the work done during replacement just to fix this old mistake.

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the labeled hot water inlet is supplying the cold water.

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If that's so you theater is installed incorrectly. The cold water inlet has a dip tube (see image)that directs the cold water to the bottom. If it's not being directed to the bottom then you are mixing co9ld water in with the hot. Reinstall the heater correctly. Good luck, Tom