The Residential Energy Efficiency Property Credit
In August 2022, the 30% tax credit for geothermal heat pump installations was extended through 2032 and can be
retroactively applied to installations “placed in service” on January 1, 2022 or later. 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—this credit will drop to 26% in 2033 and 22% in 2034 before expiring altogether.
Geothermal equipment that uses the stored solar 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. The structure must be located
in the United States and used as a residence by the taxpayer, although primary residency isn’t required. In fact, if geothermal
is installed in more than one home, there’s no limitation on the number of times the credit can be claimed.
What's NOT Eligible
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 credit calculation.
How to claim the credit
Use IRS Form 5695 to claim the Residential Energy Efficient Property Credit, and there’s no limit on the credit amount. The tax credit
can be used to offset both regular income taxes and alternative minimum taxes (AMT). If the federal tax credit exceeds tax 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.
View Federal Tax Incentives Brochure