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.
Inflation Reduction Act of 2022
Homeowners are eligible for a 30% tax credit under the Inflation Reduction Act (IRA) Residential Energy Efficient Property Credit (Section 25D) for ENERGY STAR-rated GHPs that are in service by Jan. 1, 2033. The tax credits expire at the end of 2034. Tax exempt entities are entitled to a 30% credit as well.
Frequently Asked Questions
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.
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.