The 2019 Federal Geothermal Tax Credit: Your Questions Answered

geothermal tax credit

If you’re interested in home geothermal, you’re probably curious about how you can save money with the 2019 federal geothermal tax credit.

But as with many things related to government and finance, it’s not exactly clear or easy to understand.

What does a 30 percent tax credit mean? Do I qualify for the tax credit? How do I claim it? In this article, we’ll answer these questions and more about the geothermal federal tax credit.

What is the Geothermal Tax Credit?

Let’s start here. What is the tax credit and how does it work? The initial federal investment tax credit was part of the Energy Policy Act of 2005. This bill was passed to help solve energy problems and provide tax incentives for existing and new types of energy production, including wind and solar.

At the time, the credit only lasted through 2007, but it was so successful that it was extended several times. In 2008, the program was broadened to include geothermal heating and cooling systems.

In 2016, the tax credit did actually expire. However, it was reinstated in 2018 to include not just households with geothermal heat pumps installed in 2018, but it also retroactively included any geothermal heat pumps installed after January 1, 2017.

The federal tax credit allows homeowners to claim 30 percent of the amount they spent on purchasing and installing a geothermal heat pump system from their federal income taxes.

The way this works is by having geothermal installed at home, and filling out a form declaring the amount you spent when you file your federal income taxes. As long as your system is up and running (which only takes a few days to a few weeks) by tax season, you can claim the 30 percent from your federal income taxes.

It’s an incredible advantage and can significantly reduce the cost of the system overall. There’s no limit to the value of the tax credit. As long as you still own the house where the system is installed, you can claim the true percentage based on the year you installed the system.

Do I qualify for the geothermal tax credit?

To be eligible for the federal tax credit for geothermal, you must have installed your geothermal heat pump between October 3, 2008, and December 31, 2021.

If you installed or plan to install a system by the ending date, then you’re eligible. Also, you must owe at least as much in taxes as you would claim for the credit. For this reason, it’s helpful to know what your likely tax liability will be for the year you plan to install your geothermal system.

Your geothermal heat pump also has to meet federal Energy Star criteria. Make sure your geothermal installer meets these standards up front. Dandelion Energy is an Energy Star Certified geothermal installer.

It doesn’t matter if you buy the system up front or finance your purchase. Either way, you’re eligible for the tax credit. You can even claim the tax credit on any home you own, whether it’s your main residence or a vacation home. You can also combine it with other energy efficiency tax credits or upgrades.

What if I don’t owe as much in taxes as the credit I’m eligible for?

One great aspect of this tax credit is that even if you don’t owe enough on your taxes to cover the entire amount you’re eligible to claim in one year, you can roll the remaining amount over to the next year. You can even keep doing this as long as the tax credit is active.

For example: Let’s say you purchase a geothermal heat system for $20,000. That could mean you’re eligible for a $6,000 tax credit. But let’s say you only owe $3,000 in taxes. In this situation, you can simply claim $3,000 in credit this year and $3,000 next year.

The IRS hasn’t made it clear just yet if this rolling over will still continue after the tax credit expires for homeowners altogether.

How do I claim the Geothermal Tax Credit?

After you’ve had your geothermal system installed, you’ll simply fill out an additional form when it’s time to file your federal income taxes. The form you’ll need to fill out for the IRS is 5695.

Although the name doesn’t exactly roll off the tongue, it can be a big help come tax time. Of course, you can fill this form out yourself, but be sure to read and thoroughly follow the instructions before you do.

It’s best to work with a tax professional who will know exactly how to fill out your new form for the tax break. This will ensure that everything is filled out accurately, and they can also help advise you on other potential energy tax credits you might be eligible for.

How long will the tax credit last?

This revival of the tax break will be available for homeowners through December 31, 2019, at 30 percent. From there, the percentage decreases to 26 percent in 2020, and to 22 percent in 2021. After that, the geothermal tax credit goes away for homeowners.

If you’ve been considering geothermal, there couldn’t be a better time than now to take advantage of this tax break to shave off some of the initial cost. With all the money you’ll save with the geothermal tax break, you’ll make your payback period even smaller.

Generally, it takes just a few weeks for many geothermal companies to go from site survey to completing and commissioning the system install. Dandelion has the process streamlined, so we’ve got the process down to within one week.

To learn more about how we’re making geothermal easier and more cost-effective than ever before, enjoy our frequently asked questions about geothermal and Dandelion Air, or reach out to us today.

 

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