The Biden administration has just announced a new battery of public aid and subsidies dedicated to improving energy efficiency in homes. As you may have seen in our previous contents, one of the ones we have been dealing with lately are those related to heating. In this sense, this is the new Geothermal Heat Pumps Tax Credit.
This is the subsidy you´ve been waiting for: attention to geothermal home systems
The recently passed Inflation Reduction Act includes a new federal tax credit for installing a geothermal heat pump system in your home. This tax credit allows homeowners to claim up to $2,000 for qualified geothermal heat pumps installed from January 1, 2023 through December 31, 2032.
In addition, there is a bonus 30% tax credit that can be claimed for installing a qualified geothermal system that meets Energy Star’s efficiency criteria. This bonus credit applies to systems installed between January 1, 2023 and December 31, 2032, and can add up to an additional $1,000 in tax savings.
In total, homeowners who install a new Energy Star certified geothermal system in their home can qualify to claim up to $3,000 in federal tax credits between 2023-2032. This represents a major expansion for this technology, which previously qualified for a 26% tax credit up to $2,000 under the now expired Renewable Energy Tax Credit.
The new geothermal heat pump tax credit aims to incentivize homeowners to switch to this energy efficient and environmentally friendly heating and cooling system. With geothermal installation costs often ranging from $15,000-$30,000, this tax credit can cover 10% or more of the total project cost.
All the details of the Geothermal Heat Pumps Tax Credit, explained
The new federal tax credit covers 30% of the total cost to install a qualifying geothermal heat pump system in a homeowner’s primary residence. The credit maximum is $2,000 for systems placed in service during 2022 and 2023. This increases to $3,000 for systems placed in service in 2024.
After 2024, the tax credit percentage is scheduled to decrease each year before expiring completely at the end of 2032. To qualify for the full 30% credit, the geothermal system must meet Energy Star efficiency criteria and be installed in the taxpayer’s principal residence in the United States.
The credit can be claimed on the taxpayer’s federal income tax return for the year the system was installed and placed in service. If the credit exceeds the amount of taxes owed, the difference can be carried forward to reduce taxes in future years until the full amount of the credit is used.
The 30% credit in 2022-2024 aims to make geothermal systems more affordable and encourage homeowners to install this energy efficient heating and cooling technology. With high upfront costs, the tax credit can cover a significant portion of the total expense of a new system. ¡
Energy Star explaines which systems qualify for this new tax credit
Geothermal heat pumps that qualify for the tax credit must meet specific efficiency requirements set by the Environmental Protection Agency’s ENERGY STAR program. The geothermal heat pump must have an Energy Efficiency Ratio (EER) of 14.1 or greater and a Coefficient of Performance (COP) of 3.3 or greater.
The tax credit applies to the entire cost of purchasing and installing a new geothermal heat pump system. This includes the cost of ground loop, heat pump unit, ductwork, and any other directly related costs such as drilling, excavation, labor, permitting, and disposal fees.
The maximum tax credit amount is 30% of total system costs up to $2,000 for systems installed in the home. An additional $300 tax credit can be claimed for qualified Energy Star rated geothermal heat pumps, bringing the total maximum tax credit up to $2,300.
This new Geothermal Heat Pumps Tax Credit is available from now until the year 2032, which is an indication of the opportunity you have to take advantage of this public subsidy. Along with the one dedicated to furnaces, it is one of the most promising for achieving energy efficiency in homes, as we have been addressing throughout today and the previous weeks.
