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How to Get the New Geothermal Tax Credit for Your Home or Business

Geothermal energy is becoming more affordable to residents in the U.S. This new opportunity extends the Federal tax credit for both residential and commercial installations at an affordable rate for the next 12 years. The credit has no limit and can also be combined with solar and wind credits.

For the next 10 years until 2032, commercial installations, there is a 6% base rate and a 30% bonus rate. For residential installation credit rates are at 30%, the following year 2033 will be at 26%, and 2034 will be at 22%. With the recently enacted Inflation Reduction Act 2022, the U.S. is aiming to curb inflation by investing in more eco-friendly, energy-efficient options to promote clean energy across the U.S.

General Tips on How to Qualify For the Tax Credit:

  1. The Geothermal heat pump must meet Energy Star requirements.

  2. The location of the installation must be a primary residence. (This includes existing and new construction builds) Rental properties do not qualify.

  3. You can utilize the tax credit multiple times if you choose to install geothermal in multiple residencies/ businesses.

  4. The Geothermal heating system must be up and running prior to applying for the tax credit.

  5. The credit is applicable for a maximum of 10 years. (Not usually refundable)

  6. The tax credit is applicable to cover the equipment, installation, labor (if it wasn't yourself) and products.

To apply for this tax credit, you must ensure that you have the current geothermal pump that will qualify for the credit. Utilizing a tax professional may be beneficial to assist with your application because there are multiple forms that are needed to file. It’s also necessary to know the cost of your geothermal system to fill out the forms and file for the credit.

Tax Credit and Deductions for Commercial Buildings

In commercial spaces, there is an additional deduction that owners can receive if the design of the building shows a 50% decrease in energy usage. This can be achieved through revamping the heating/ cooling, lighting, hot water, or ventilation. The tax deduction for commercial spaces can be up to $1.80 per square foot of the facility.

Whether you're installing a Geothermal heat pump in a residential or commercial property will determine the credit rate that is received. The commercial tax credit also contains bonus rates that can affect the overall cost of your system; These rates will also decline over the next 12 years, so quicker installation will save you more money.

*The IRS also requires your Geothermal energy usage be monitored by one of these software systems when it's up and running.

For your application, the following forms are needed:

· IRS assistance

For more information on design, costs, and construction requirements of Geothermal heating, feel free to reach out to Jon Alexander, PE, CGD, in the Columbus office of Tec Inc. He is a Certified Geothermal Designer and has experience with studying and designing geothermal systems for commercial and institutional clients. If interested in the Geothermal Tax Credit, apply as soon as you can ('22-'23) to save the most on your geothermal installation.

The ability to receive this tax credit is another step that our country is taking to ensure we don't overload our PowerGrid with the increasing technology we use on a daily basis. The option to utilize this energy solution is a solution that could affect the way we secure and use power every day. In addition to the federal tax credit, some state, local, and utility incentives may be available in your area for even more savings on installing a geothermal heat pump. Check out the Database of State Incentives for Renewables & Efficiency (DSIRE) website to find policies and incentives in your area.


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