Geothermal Heat Pump Tax Credits

In December 2020, the tax credit for geothermal heat pump installations was extended through 2023. Geothermal equipment that meets ENERGY STAR requirements, and that uses stored solar energy from the ground for heating and cooling purposes IS eligible for the tax credit. 

The Energy Credit: Learn More 

Property is usually considered to be placed in service when installation is complete and equipment is ready for use. However, if the system is part of the construction or renovation of a house, it’s considered placed in service when the taxpayer takes residence in the house. To save the most on your installation, you’ll want to act quickly.

• 26% of total system cost in 2021 and 2022
• 22% of total system cost in 2023
• No limit to credit amount
• Can be used to offset alternative minimum tax (AMT)
• Can be used for more than one year
• Can be combined with solar and wind tax credits
• Can be combined with energy upgrade credits

What’s eligible?

Geothermal equipment that uses stored energy from the ground for heating and cooling AND that meets ENERGY STAR requirements at the time of installation is eligible for the tax credit. Covered expenditures include labor for onsite preparation, assembly, or original system installation and for piping or wiring to connect a system to the home.

What’s Not

The credit can’t be claimed for spending on equipment used solely for hot tub or pool conditioning, nor on previously used equipment. Rental home installations also cannot be claimed. As of November 2013, electric strip heat and ductwork distribution systems are no longer included in the tax circulation.

How to Claim the Credit

Use IRS Form 5695 to claim the Residential Energy Efficient Property Credit. For property placed in service after 2009, there’s no limit on the credit amount. The tax credit can be used to offset both regular income tax and alternative minimum taxes (AMT). The the federal tax credit exceeds liability, the excess amount may be carried forward into future years. Spending on geothermal heat pump property adds to your home’s cost basis but also must be reduced by the amount of the tax credit received.

GEO—the Geothermal Exchange Organization—is a non-profit 501(c)(6) trade association representing the interests of all businesses involved in the geothermal heat pump industry across the United States. GEO provides outreach to the industry, public and government about the economic, national security, and environmental benefits of geothermal heat pump systems for residential, institutional and commercial applications. For more information, visit www.geoexchange.org. Phone: (888) 255-4436. Email: GEO@geoexchange.org.