Federal Tax Credit Info


Federal Tax Credit InfoAn exciting new tax credit is now available for home and commercial building owners who install geothermal heating and cooling systems through the Energy Improvement and Extension Act of 2008 (H.R. 1424). H.R. 1424 offers a onetime tax credit of 30% of the total investment for homeowners who install residential ground loop or ground water geothermal heat pumps. A credit of 10% of the total investment is also available (no maximum) for a commercial system installation.

The Department of Energy (DOE) and the Environmental Protection Agency (EPA) have both endorsed geothermal heat pump systems as among the most energy efficient, environmentally clean, and cost effective systems for temperature control. In an effort to encourage the wide spread use of geothermal technology Congress passed the Energy Improvement and Extension Act of 2008 (H.R. 1424) which offers a onetime tax credit of 30% based on the total investment for homeowners who install residential ground loop or ground water geothermal heat pumps.

To qualify, the systems must meet or exceed EnergyStar requirements and be installed after December 31, 2007. While units installed in 2008 are subject to a $2,000 cap on the credit, units installed from 2009 through 2016 can take advantage of the full credit.

Owners can file for the credit by completing the Renewable Energy Credits subsection on their tax return forms for 2008. For taxpayers that are subject to the Alternative Minimum Tax, they can claim the credit on their taxes for the following year. No proof of purchase will be required; however, in case of an audit, owners are encouraged to keep a detailed invoice of their purchase on file. The contractor who sold and installed the product should list the purchase as a “Geothermal Heat Pump” on the invoice and that it “Exceeds requirements of Energy Star program currently in effect”.

The tax credit is available through December 31, 2016. Consult your local tax professional for advice on taking advantage of the tax credit, as this announcement is not intended as a recommendation or endorsement of any financial strategy.

This tax credit item is for existing homes or new construction. This does not have to be your primary residence, as vacations and rentals are eligible, and it includes the cost of materials and installation.

Here are some of the stipulations for the residential systems:

1. The system must meet Energy Star requirements in effect at the time the system is completed.

2. The system must be in the taxpayer’s residence but is not limited to the primary residence.

3. No proof of purchase will be required; however, in case of an audit, you are encouraged to keep a detailed invoice of your investment on file.

4. There are no specific requirements for the invoice. However, it will be helpful if the invoice states “Geothermal Heat Pump” and that it “Exceeds requirements of Energy Star program currently in effect” on it.

5. The taxpayer has to file the Form 5695 to receive the credit.

6. If you are subject to the Alternative Minimum Tax, you can claim the credit on your taxes for the following year.

7. Can be combined with solar and wind tax credits!

8. Homes must be located in the United States.

9. Includes homes, apartments, condos, and mobile homes.

10. System must be installed between 1/1/2008 and 12/31/2008.

Choose Geothermal Heat Pumps that meet these criteria to get the Tax Credit; and check products carefully, because in many cases an ENERGY STAR certification does not necessarily meet the tax credit requirements below:

Geothermal Heat Pumps: All Energy Star models qualify.
Close Loop – A ground heat exchanger in which the heat transfer fluid is permanently contained in a closed system.

  • Energy Efficiency Ratio (EER) must be at or above 14.1.
  • Coefficient of Performance must be at or above 3.3.

Open Loop – A ground heat exchanger in which the heat transfer fluid is part of a larger environment. The most common open loop systems use ground water or surface water as the heat transfer medium.

  • Energy Efficiency Ratio (EER) must be at or above 16.2.
  • Coefficient of Performance must be at or above 3.6.

Refrigerant Based – A geothermal heat pump system in which the refrigerant is circulated in pipes buried in the ground(such as our freon copper system), rather than using a heat transfer fluid, such as water or antifreeze solution in a separate closed loop, and fluid to refrigerant heat exchanger. A refrigerant based system includes all of the equipment both inside and outside the house. Refrigerant based systems may be single or multi-speed.

  • Energy Efficiency Ratio (EER) must be at or above 15.
  • Coefficient of Performance must be at or above 3.5.

Look for Geothermal integration to combine a Furnace, Air Conditioner, and Boiler together in one system. You get forced air heating and cooling, plus the system generates hot water for radiant floors.

Contact us to find tax credits in your state!