The Energy Credit

In October 2008, geothermal heat pumps were added to section 25D of the Internal Revenue Code. This created a 30% tax credit for costs associated with qualified geothermal equipment “placed in service” through the end of 2016. 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. The Energy Credit consists of:

• 30% of total system cost
• No limit to credit amount for 2009 and beyond
• Can be used to offset AMT tax
• Can be used in more than one year
• Can be combined with solar and wind tax credits
• Can be combined with energy efficiency upgrade credits
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What All Is Covered

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 Is Not Covered

The credit can’t be claimed for spending on equipment used solely for hot tub or pool conditioning, nor on previously used equipment.

Online Resources

• IRS tax code summarized - United States Code Title 26.
• More information about the "Residential Renewable Energy Tax Credit."

How to Claim the Credit

Use IRS Form 5695 to claim the Residential Energy Efficient Property Credit.

For property placed in service after the start 2009, 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.

This information is for general information only. This information is not an authority that can be cited in response to an enforcement action or in litigation. The information is provided with the understanding that All Season Heating and Cooling is not rendering legal, accounting, tax, or other professional advice. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.

While we have made every attempt to ensure that the information presented has been obtained from reliable sources, All Season Heating and Cooling is not responsible for any errors or omissions, or for the results obtained from the use of this information.

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