Tax Credits for Geothermal Heating & Cooling Systems
The tax credit is 26% through 2022, but drops to 22% in 2023
In October 2008, geothermal heat pumps were added to section 25D of the Internal Revenue Code. This created a 26% tax credit for costs associated with qualified geothermal equipment “placed in service” through the end of 2022 for all Dayton, Springfield and SW Ohio residents.
Property is usually considered to be placed 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.
- 26% tax credit through 2022
- 22% tax credit through 2023
- Can be used to offset AMT tax
- Can be used in 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 hot tub or pool conditioning, nor on previously used equipment. There may be more rebates available from your current providers, and we keep updated on the ever-changing offers that can be added to the 26% credit mentioned above. Please contact us to learn of any additional rebates and, or incentives by calling (937) 969-8440 or e-mail us today for more information.
How to Claim
Use IRS Form 5695 to claim the Residential Energy Efficient Property Credit. For property placed in service after 2017 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 into future years. Spending on geothermal heat pump property adds to your home’s cost basis but also must be reduced by the amount of the tax credit received.