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What does the Geothermal tax credit extension mean for you?

What does the Geothermal tax credit extension mean for you?

A 30% tax credit for the installation of a ground source heat pump (geothermal system) with no cap was enacted in 2009. This Tax credit was available through the end of 2016. From 2017 to January of 2018 there was an ongoing fight to extended this tax credit. Ultimately the tax credit was reinstated in early February 2018. It’s now slated to be available until the end of 2021.

The Tax Credit may be claimed for spending on ‘Qualified Geothermal Heat Pump Property’ which means any equipment that –

  1. Uses the ground or groundwater as a thermal energy source to heat the dwelling unit or as a thermal energy sink to cool the dwelling unit
  2. Meets the requirements of the Energy Star program 

FAQs About the Geothermal Tax Credit

Do water-to-water geothermal heat pumps qualify for the tax credit?

Yes. Beginning on December 1, 2009, water-to-water geothermal heat pumps are covered by the tax credit. However, the heat pump in question must have been bought on or after December 1, 2009.

Are all parts of the geothermal heat pump covered by the tax credit?

The tax credit is applied to all of the parts that come with the heat pump, as well as the installation of the heat pump and ground loop. The only parts that may not be covered are add-on components.

Is water heating a necessary element of a geothermal heat pump that qualifies for the tax credit?

As of December 1, 2009, no, the heat pump does not have to be used for water heating to qualify.

Is a geothermal heat pump installation in my vacation or second home covered by the tax credit?

Geothermal heat pumps are one of the products that are covered by the tax credit when installed in a vacation or second home.

How to claim the credit:

Use Form 5695 for systems installed since Jan. 2009. See more information from the IRS here.

Geothermal Tax Credit


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