The Geothermal Tax Credit added in October 2008 to section 25D of the Internal Revenue Code has EXPIRED as of December 31, 2016. This tax credit created a 30%credit for costs associated with qualified geothermal equipment “placed in service” through the end of 2016. The property is usually considered to be put in service when installation is complete and equipment is ready for use. However, if the system is part of the construction or renovation of a house, it’s considered placed in service when the taxpayer takes residence in the house.
What Is The Tax Credit
- 30% of total system cost
- No limit to credit amount for 2009 and beyond
- Can be used to offset AMT tax
- Can be utilized for more than one year
- Can be combined with solar and wind tax credits
- Can be combined with energy efficiency upgrade credits
Geothermal equipment that uses the stored solar energy from the ground for heating and cooling and that meets Energy Star requirements at the time of installation is eligible for the tax credit. Covered Expenditures include labor for onsite preparation, assembly, or original system installation and for piping or wiring to connect a system to the home. The structure must be located in the United States and used as a residence by the taxpayer, although primary residency isn’t required. In fact, if geothermal is installed in more than one home, there’s no limitation on the number of times the credit can be claimed.
The credit can’t be claimed for spending on equipment used solely for a hot tub or pool conditioning, nor on previously used equipment.
How to Claim the Credit
Use IRS Form 5695 to claim the Residential Energy Efficient Property Credit. For property placed in service after 2009, there’s no limit on the credit amount. The tax credit can be used to offset both regular income taxes and alternative minimum taxes (AMT). If the federal tax credit exceeds tax liability, the excess amount may be carried forward for future years. Spending on geothermal heat pump property adds to your home’s cost basis but also must be reduced by the sum of the tax credit received.
Federal Tax Incentives for Commercial Geothermal Heat Pumps
Benefits of Tax Credit:
- 10% of total system cost with no limit
- 10% grant available in lieu of tax credit
- Combine with solar and wind tax credits
- Up to $1.80 per Sq. Ft. (for Energy Efficient Commercial Building)
- Property Tax Deduction (combine with other Qualified Section 179)
- Real Property Tax deductions
- 100% Bonus Depreciation in the first year (10/2010 to 1/1/2012)
- 50% Bonus Depreciation in the first year and a five-year MACRS depreciation on the balance (1/1/2012 to 12/31/2012)
- Building located in U.S.
- Original use begins with taxpayer (Installed between 10/3/2010 and 12/31/2016)