30% Federal Tax Credit on GeoThermal Heat Pumps
Saving Americans Money on Renewable Energy Improvements
What is the Tax Credit?1
The renewable energy tax credit covers 30% of the total system cost, including installation, of GeoThermal heat pumps meeting the requirements of the ENERGY STAR program. Under the Inflation Reduction Act in August 2022, the GeoThermal tax credits have been extended through December 31, 2034. The 30% tax credit may also be retroactively applied to GeoThermal systems placed in service on January 1, 2022 or later.
Residential Tax Credit
You’ll want to act soon to save the most on Your GeoThermal installation. The 30% tax credit will reduce to 26% in 2033, then to 22% in 2034, before it expires altogether.
| 30% Tax Credit through 2032 |
26% Tax Credit through 2033 |
22% Tax Credit through 2034 |
What equipment qualifies for the residential tax credit?
- The tax credit applies only to new “qualified geothermal heat pump property”.
- To be eligible, all GeoThermal heat pumps must meet the requirements of the ENERGY STAR program which are in effect at the time of installation. Click here to see a list of ENERGY STAR certified GeoThermal heat pumps. Tax credit includes installation costs.
- The GeoThermal heat pump must be installed in a home you own and use as a residence. Existing homes and new construction qualify for the tax credit. Both principal residences and second homes qualify. Rentals do not qualify.
- Qualified GeoThermal heat pumps must use the ground or ground water as a thermal energy source to heat your home or as a thermal energy sink to cool your home. Equipment used exclusively to heat swimming pools or hot tubs is excluded.
Commercial Tax Credit
The commercial tax credit is extended under a two-tier structure:
- A “base rate” of 6% (or 1/5 of the bonus rate)
- A “bonus rate” of 30%
The tax credit will reduce in 2033 and again in 2034, so you will want to act soon to make the most of the available savings.
Credit for commercial geothermal installation rates:
| 30% Bonus / 6% Base through 2032 |
26% Bonus / 5.2% Base through 2033 |
22% Bonus / 4.4% Base through 2034 |
What projects quality for the “bonus rate”?
In order to receive the bonus rate, projects will have to either:
- meet prevailing wage and apprenticeship requirements, or
- be “a project with a maximum net output of less than 1 megawatt (as measured in alternating current) of electrical or thermal energy.”
Efficiency Requirements
To be eligible for the tax credit, GeoThermal systems must meet the following ENERGY STAR efficiency requirements:
| Water-to-Air | Water-to-Water | Direct Expansion |
|---|---|---|
| Closed Loop: EER* >= 17.1 COP** >= 3.6 |
Closed Loop: EER >= 16.1 COP >= 3.1 |
EER >= 16 COP >= 3.6 |
| Open Loop: EER >= 21.1 COP >= 4.1 |
Open Loop: EER >= 20.1 COP >= 3.5 |
How Do I Apply?
To claim residential tax credit, fill out IRS Form 5695 and file it with your tax returns. The 2022 form 5695 has not been released yet, but you can get the 2021 Form 5695 here. If you have already filed your return, you will need to file an amended return (Form 1040X) to claim these credits. Save your receipts and the Manufacturer’s Certification Statement2 for your records. Please contact the IRS directly, or talk to your tax professional, with questions on how to file.
To claim the commercial tax credit, consult with your tax professional, or contact the IRS directly.
GeoThermal is a Smart Choice for Homes and Commercial Properties
No matter what type of property you own, we’re here to help you choose the right GeoThermal system for you. A GeoThermal heat pump (air conditioning system) has many benefits to offer you — and the 30% tax credit is just the beginning. GeoThermal heat pumps are environmentally friendly, long-lasting and can save you up to 70% on your energy bills. Read more of the top reasons to choose a GeoThermal AC / heat pump.
Are You Ready to Go GeoThermal?
So, what are you waiting for? Call Symbiont Service Corp today, or click the live chat window to connect immediately with one of our friendly representatives. We’ll be glad to answer any remaining questions.
Start reaping the benefits of a GeoThermal heat pump in your home. Call: 941.474.9306 | 800.881.4328 to get a free, detailed quote.
1 Disclaimer: The tax credit information contained within this website is provided for informational purposes only and is not intended to substitute for expert advice from a professional tax/financial planner or the Internal Revenue Service (IRS). Statements on this page are being finalized by the federal government and are subject to change and interpretation. To understand what you qualify for, please see your tax professional.
2 A Manufacturer’s Certification Statement is a signed statement from the manufacturer certifying that the product or component qualifies for the tax credit. Manufacturers should provide these Certifications on their website. Call the manufacturer, or search their website. EPA does not have copies of the Manufacturer’s Certification Statement. Taxpayers must keep a copy of the certification statement for their records, but do not have to submit a copy with their tax return.
Definitions:
* COP (Coefficient Of Performance) – of a heat pump is the ratio of the change in heat at the “output” (the water reservoir of interest) to the supplied work.
** EER (Energy Efficient Ratio) – The higher the EER rating, the more energy efficient the equipment is. This can result in lower energy costs. This DOE site can show how to calculate potential energy costs savings of a more efficient unit.
Sources:
The information in this article was adapted from documents published by GeoExchange and WaterFurnace following the passage of the Inflation Reduction Act in August 2022.
