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22% US Tax Credit

There is a 22% US tax credit available for geothermal!

The information in this literature is for general information only. The information is not providing tax, accounting, legal or other professional advice. This material should not be used as a substitute for expert advice from a tax, accounting or legal professional.

The American Recovery and Reinvestment Act adopted in October 2008 allows for a 22% tax credit for costs associated with ENERGY STAR qualified geothermal heat pumps, as noted in section 25D of the Internal Revenue Code. The 22% credit applies to geothermal equipment placed in service during 2022.

Note: Equipment placed in service during 2008 was subject to a cap of $2,000. This cap was removed for geothermal heat pumps placed in service after December 31, 2008.

The Geothermal Tax Credit Can Be Claimed Using IRS Form 5695

Download IRS Form 5695

The equipment essentials

  • Any geothermal equipment meeting ENERGY STAR requirements at the time of installation is eligible for the federal tax credit.
  • The geothermal system must be installed in the United States in a home owned by the taxpayer. Primary residency is not required for eligibility.
  • The credit is equal to 22% of the total system cost. Inclusive of equipment, labor, piping, etc.

Tax credit basics

  • Can be used to offset Alternative Minimum Tax (AMT) tax
  • Can be used in more than one year
  • Can be combined with other energy efficiency upgrade credits
  • Can be combined with solar and wind tax credits
  • There is no cap to the tax credit
  • There is no limit to the number of times the credit can be claimed. If the taxpayer has more than one home, the credit can be claimed for each home where geothermal equipment is installed.

Other geothermal incentives

Many entities beyond the federal government are now providing incentives for purchasers of geothermal heating and cooling equipment. Numerous states, local municipalities and utilities also now offer rebates, tax incentives or low interest loans to support your installation.

For more information on incentives available to you, please contact us or your local tax professional. You can also visit the Database of State Incentives for Renewables and Efficiency at DSIREUSA.ORG. DSIRE is a comprehensive source of information on state, local, utility and federal incentives and policies that promote renewable energy and energy efficiency.

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