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 (2010) is now available, allowing you to receive a full 30% credit for qualifying geothermal installations in 2010.
Geothermal Energy Tax Credit Examples
New Home Installation
A taxpayer decides to build a new home and begins construction in the fall of 2009. A geothermal system is installed during the construction process and the homeowner takes posession in May 2010. The total cost of the geothermal system is $22,000.
Tax Credit Calculation: $22,000 x 30% = $6,600 credit
The taxpayer receives a full 30% credit for the 2010 tax filing year.
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 2010.
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 2010 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.
Geothermal Furnace Replacement
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 $9000.
Tax Credit Calculation: $9,000 x 30% = $2,700
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 2010. Installing approved energy efficient roofing, adding insulation, energy efficient windows and others can be combined with the residential geothermal installation. Use IRS Form 5695 for both credits.
Energy Efficiency Tax Credit for Geothermal: $16,000 x 30% = $4,800
2010 Energy Property Tax Credit for new Windows: $12,000 x 30% = $3,600 ($1,500 cap) = $1,500
Total Tax Credit for 2010 = $6,300
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law on December 16, 2010, extending the Residential Energy Credits for qualifying purchases through December 31, 2011. However, the credit has now been capped at $500 for purchases made in 2011 and varies depending on the product. Also, the credit is no longer available to homeowners who have already claimed $500 or more in previous years. For 2011, a combined tax credit would be as follows:
Energy Efficiency Tax Credit for Geothermal (Good through 2016): $16,000 x 30% = $4,800
2011 Energy Property Tax Credit for new Windows: $12,000 x 30% = $3,600 ($500 cap) = $500
Total Tax Credit for 2011 = $5,300
