Geothermal Heating System Tax Credit Guide
The current tax credits for geothermal are excellent and since the energy efficiency tax credits from the US Gov’t are in place through 2016, that’s plenty of time to plan, install and start getting paid back for having a high efficiency Geothermal heat pump installed in your home.
On this page of the Geothermal Guide, you’ll learn information about Geothermal Tax Credits and find the right answers you’re looking for as you consider this green, energy-efficient way to heat and cool your home using renewable geothermal energy.
The Geothermal Federal Tax Credit, 2011-2012
While many of the other federal tax credits expire at the end of 2011, the geothermal Federal tax credit runs until the end of 2016 in its current form. It allows for a flat-rate 30% tax credit on your federal return for the total cost of your geothermal heating and cooling system, including the prices for installation paid to the geothermal contractor.
There is no cap or maximum amount, on the Federal tax credit for geothermal cooling and heating like there was on tax credits for high-efficiency conventional HVAC equipment. Whatever the total cost is, you’ll receive 30% of that price back in the form of a tax credit.
The Geothermal Tax Credit is Better than a Standard Deduction
A standard tax deduction, as you likely know, reduces the amount of your taxable income. For example, if the Geothermal heating system price was $25,000, 30% of that would be $7,500. If that were a tax deduction, it would lower your taxable income by $7,500 which would reduce your tax liability by an amount well below $7,500. You’d simply be paying taxes on $7,500 less.
With a tax credit, the $7,500 would come off the top of your tax burden. If you owe $10,000 for the year, for example, the tax credit would reduce that amount to $2,500. If you had already paid $5,000 through estimated taxes or withholding taxes, you would still owe $5,000. The $7,500 would be applied to that figure and you would receive instead a $2,500 refund.
How to Qualify for the Geothermal Tax Credit
Unlike most of hvac tax credits, there are not many requirements for geothermal heating and cooling systems to qualify for the tax credit. The standards are spelled out in the federal renewable energy credits subsection of the tax code, and are very easy to understand.
The geothermal tax credits apply to “Qualified Geothermal Heat Pump Property” This means that the geothermal heating component uses the ground or ground water as the source of the geothermal energy used to heat the home. For geothermal cooling systems, if the ground or groundwater is the cooling sink for the unit, it qualifies.
In addition, the geothermal heating and cooling equipment must meet Energy Star qualifications at the time it is installed. Almost all geothermal heat pump systems are Energy Star qualified.
Ask your geothermal contractor to verify Energy Star equipment at the time you choose your geothermal energy system. Here are the current levels for Energy Star qualifications. Keep in mind that these may change.
- Open Loop: Minimum 3.6 COP (coefficient of performance); minimum 16.2 EER (energy efficiency rating).
- Closed Loop: Minimum 3.3 COP; minimum 14.1 EER.
- Direct Expansion (DX): Minimum 3.5 COP; 15 EER.
The home does not have to be your primary residence. In addition, it is no longer required that the geo thermal system also be used to heat water for use in the home, as was the case prior to 2009. Geothermal water to water, or hydronic systems that are used solely to heat water in a swimming pool or hot tub may not qualify.
State Tax Credits, Loans and Utility Rebates
Every state and many local utility companies are supporting the use of renewable energy such as geothermal energy. It varies by state, but in some cases the tax credit can be as high as 35% or higher. This applies only to state taxes, but when added to the 30% federal geothermal tax credits, it makes the installation of a geothermal cooling and heating system that much more affordable.
The best way to find out the details in your state is to visit your state’s energy department website or the Database of State Incentives for Renewables and Efficiency at www.DsireUSA.org.
This is a wonderful time to learn more about geothermal energy and the potential savings available to you if you install a geothermal heating and cooling system. The prices of geothermal systems are increasingly affordable and with the addition of tax credits and utility rebates, the geothermal energy systems are now a very real option for many more homeowners.