Tax Credit for Geothermal Installations
On October 3, 2008, the Emergency Economic Stabilization Act of 2008 was signed into law creating a 30% Federal tax credit for homeowners who install geothermal heat pump systems in their new or existing home. This credit applies to geothermal systems placed into service through the end of 2016. At the time of its signing, the credit was capped at $2000 per tax payer.
The American Recovery and Reinvestment Act of 2009, signed into law On February 17, 2009 removed the $2000 cap making the credit a full 30% for qualified installations placed into service beginning January 1, 2009.
Claim Form for Energy Tax Credit
IRS Form 5695 (2008) can be used to claim your geothermal tax credit up to $2000 for installations completed during 2008. Form 5695 (2009) is now available, allowing you to receive a full 30% credit for qualifying geothermal instalations in 2009.
Geothermal Energy Tax Credit Examples
New Home Installation
A taxpayer decides to build a new home. Construction begins in the fall of 2008 but is not completed until January 2009. The geothermal system was installed and completed in December 2008, but the homeowners did not take possession of the home until February 1, 2009. The total cost of the geothermal system is $22,000.
Tax Credit Calculation: $22,000 x 30% = $6,600 credit
Although the geothermal system was installed in 2008, the taxpayer receives a full 30% credit since they moved into their home in February 2009.
Existing Home Installation
A taxpayer replaces his existing gas furnace and air conditioner with a qualified geothermal furnace. Some changes were made to the existing duct work and a geothermal loop system was installed vertically in their back yard. The total cost of the replacement system was $15,000 in 2009.
Tax Credit Calculation: $15,000 x 30% = $4,500 credit
New Condominium Installation
A developer spends $48,000 per building to install geothermal systems in a condominium complex. Each building contains four separate residences. A taxpayer purchases one new condominium unit from the developer in 2009 and takes possession immediately.
Tax Credit Calculation: $12,000($48,000 / 4) x 30% = $3,600
The condominium owner may claim his or her share (in this case ¼) of the tax credit.
Replacement Furnace Installation
A taxpayer decides to replace an existing geothermal furnace that’s been in operation for twenty years to take advantage of a newer, higher efficiency unit. The replacement furnace is the same size as the one being replaced so no changes are made to the existing geothermal loop system. Only minor changes are made to the existing duct work and the total cost is $7000.
Tax Credit Calculation: $7,000 x 30% = $2,100
Residential Energy Property Credit Combined with Geothermal
The American Recovery and Reinvestment Act of 2009 has also made provisions to allow a tax credit for homeowners who make energy efficient improvements to their existing homes. The law increases the credit to 30 percent of the cost of all qualifying improvements up to $1,500 for 2009 and 2010. Installing approved energy efficient roofing, adding insulation, energy efficient windows and others can be combined with the installation of a geothermal system. Use IRS Form 5695 for both credits.
Energy Efficiency Tax Credit for Geothermal: $16,000 x 30% = $4,800
Energy Property Tax Credit for new Windows: $12,000 x 30% = $3,600 ($1,500 cap) = $1,500
Total Tax Credit = $6,300
