Geothermal Tax Credit

Geothermal heating and cooling systems are up to four times more efficient than conventional systems. And since these systems burn no fossil fuel, they conserve the earth’s resources while adding no pollutants to our
atmosphere.  There is certainly a lot to like about a geothermal heating and cooling system.

And it gets even better! The decision to install a geothermal heating and cooling system is made easier by the current residential geothermal tax credit offered by the IRS. They call it the “Credit for Residential Energy Efficient Property” and it encourages people to build green by absorbing part of the expense in the form of a lower tax bill.

With this energy tax credit, you can deduct 30% of the cost of installing a geothermal system right off your taxes. In other words, you get the benefit of a great heating and cooling system, and the IRS picks up 30% of the bill. Certainly makes the choice to build green a lot more appealing!

What is an Energy Tax Credit?

Tax credits are dollar for dollar reductions in the amount you owe in taxes. This is much better than a tax deduction, which merely reduces your taxable income, and saves you money based on your tax bracket. With a credit, every dollar credited is one dollar less you pay in taxes! And if your credit exceeds your tax liability, the unused credit can be applied to next year’s tax return.

The geothermal installation tax credit includes not only the cost of the system itself, but also the cost of labor to have it installed. And unlike some of the other energy tax credits available, there is no upper limit to what you can save. Whatever the system costs to install, your final cost is just 70%, as the government allows you a credit for the other 30%!

Qualifying for the Geothermal Energy Tax Credit

The residential geothermal tax credit can be applied to either a primary home or a second home. However, rental property does not qualify for the credit. Also the home must be located in the United States and owned by a US resident. This credit is available until 2016. So there is plenty of time build or refit your home and still qualify for this generous tax credit.

The system installed must meet Energy Star standards.  A manufacturer’s compliance statement may be needed to demonstrate that your system meets the Energy Star requirements. Although it is a good idea, your geothermal system is not required to heat your domestic hot water. Prior to 2009, this had been an Energy Star requirement and therefore a geothermal tax credit requirement. However, this is no longer the case.

This information is intended as a guideline only and not as tax advice. Some restrictions may apply. Consult your accountant or the specific IRS code for a more detailed explanation.

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