Geothermal systems can save a consumer 30-70% on their monthly utility bills. A growing number of consumers are heating and cooling with geothermal due in part to tax credits and incentives from numerous states and utility companies. A listing of these incentives and tax credits can be found at the U.S. Department of Energy website www.dsireusa.org. DSIRE is a comprehensive source of information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency.
New Iowa Tax Credit Announced
We are excited to announce that on Friday, May 25, 2012 Governor Branstad signed SF2432 containing the Iowa incentive for installing geothermal into law. This new law is effective immediately and is applied retroactively to January 1, 2012. Iowans will now receive 6% income tax credit until 2018 on the installation of their geothermal system.
Frequently Asked Questions
A tax deduction reduces the amount of your income that is considered taxable by the IRS. A tax credit is taken after the determination of the amount of taxes that you have to pay. Tax credits are a dollar for dollar reductions in the amount of taxes you owe, and are the same for everyone, regardless of income level.
You will not lose any of the remaining balance. The residual amount will be carried forward into future years and applied to that tax liability.
Yes, the tax credit applies to existing residential installation as well as new construction.
The tax credit can only be applied to new "qualified geothermal heat pump property." Geothermal equipment that does not meet ENERGY STAR requirements effective at the time the equipment is installed is not eligible. Also excluded is equipment used exclusively to heat swimming pools or hot tubs or previously used geothermal equipment.
Possibly. You may be able to claim the tax credit on your share of the condominium association's geothermal spending. The tax code has specific restrictions, so please consult your tax professional and homeowner's association for further information.
There is a separate tax credit available for businesses installing geothermal equipment. If you have a business operating out of your home, consult your tax professional for proper allocation of the residential tax credit.
System Requirement Basics
Any geothermal equipment meeting ENERGY STAR requirements at the time of installation is eligible for the federal tax credit.
The geothermal system must be installed in the United States in a home owned by the taxpayer. (Primary residency is not required for eligibility)
The credit is equal to 30% of the total system cost. (Inclusive of equipment, loop field, piping, labor, etc.)
Tax Credit Basics
Can be used to offset Alternative Minimum Tax (AMT).
Can be used in more than one year.
Can be combined with other energy efficiency upgrade credits.
There is no cap to the tax credit.
There is no limit to the number of times the credit can be claimed. (If the taxpayer has more than one home, the credit can be claimed for each home where geothermal equipment is installed).
To claim the Residential Energy Efficient Property Credit use IRS Form 5695
Please remember this material should not be used as a substitute for expert advice from a tax, accounting or legal professional.