Geothermal tax credit

As part of the economic rescue bill (H.R. 1424) passed in October 2008, a residential system installed and placed in service between January 1, 2009 and December 31, 2016 was previously eligible for a tax credit equal to 30% of the installed cost of the system up to a cap of $2,000 for a single residence. The Stimulus Bill signed in 2009 by President Obama improves that tax credit and removes any cap from the incentive. A homeowner is no longer limited, and may collect the full 30% of the installed system cost as a tax credit for systems that are installed after January 1, 2009. In addition, if a homeowner is not able to use the entire tax credit in the year the system is installed, they may carry the unused portion of the credit into the next year. 

A new Energy Star specification for geothermal heat pumps went into effect on December 1, 2009. The qualifications for Energy Star were expanded and Water-to-Water units were added. 

A qualified system must meet the following requirements: 

1. Installed after January 1, 2009 and before December 31, 2016.
2. According to the Internal Revenue Service (IRS) guidance, the Federal tax credit is tied to the Energy Star specification that is in effect at the date of purchase.
3. EnergyStar encourages the use of a heat recovery module but this is not required under the guidlines effective December 1, 2009.
4. Installed in a residence (not limited to primary residence).
5. For purposes of Energy Star qualification, geothermal heat pumps include the following: open loop, closed loop, and DGX and are powered by a single phase current.
6. The taxpayer has to file IRS Form 5695 to receive the credit.

The state of Kentucky also offers a personal tax credit of $250 for geothermal installations through 12/31/2015.

For more information about tax credits for geothermal systems - click here>