Geothermal Investment Tax Credit Expanded to 30% by the Inflation Reduction Act

The Inflation Reduction Act is great news for homeowners considering a geothermal system. The legislation, passed in 2022, increased the value of the Residential Clean Energy Credit, providing homeowners with a tax credit worth 30% of the cost of the geothermal system on their federal income taxes.

This tax credit is available now, and offers a huge incentive for homeowners who are looking to upgrade their heating and cooling system and greatly improves the return on investment for a geothermal system.

Who Qualifies for the Credit?

The Residential Clean Energy Credit is a type of Investment Tax Credit (ITC) established under section 25D of the tax code, which provides that: 

  1. Ground source heat pump equipment needs to meet Energy Star requirements at the time of installation.
  2. The home must be located in the United States and be the residence of a taxpayer. It does not have to be your primary residence. 
  3. There is no limit to the value of the credit you can claim. You can use the tax credit multiple times if you install geothermal in more than one home. 
  4. The equipment must be new. 
  5. The system cannot be used solely to heat hot tubs or pools. 
  6. The credit is not refundable, so you will need to owe federal taxes to claim the credit. This personal tax credit is applied to your tax liability to the IRS (including any withholdings already held by your employer), so your tax credit cannot exceed the amount that you owe in taxes. However, if you don’t owe enough in taxes to recoup the full amount of the tax credit in the year you install, the remainder will apply to the next year and so on until you recoup the full amount. 

There is no limit to the number of times or a maximum amount you can claim for the tax credit. If you have multiple projects that qualify for the credit, you can claim it for each of them.

For instance, Dandelion has several customers who installed geothermal in their primary and secondary homes and used the tax credit for both. The geothermal tax credit can also be combined with solar tax credits or any applicable energy efficiency upgrade credits.

Who benefits from this tax credit?

Geothermal heating and cooling has traditionally been very expensive to install. In the past, this has presented a major challenge for homeowners who wanted to move away from fuel, propane, and natural gas. 

Dandelion has worked extensively to drive down installation costs and make geothermal more accessible for homeowners. Dandelion’s drilling technology made installation faster and more efficient and offers financing options that are cheaper than many homeowner’s monthly heating bills.

The expansion of the Federal tax credit, along with incentives available at the state level, have made Dandelion’s geothermal systems more affordable and cost-effective than ever. 

How do you claim it?

Claiming the tax credit is about as simple as it gets for the IRS – you just fill out form 5695 when you file your taxes. Instructions to help guide you through the form can be found here. The IRS also has a commonly asked questions page for energy incentives which is available here

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.

If you’ve been considering geothermal, now is the best time to take advantage of this tax break. With all the money you’ll save with the enhanced tax credit, your payback period will be shorter and you will see a higher return on investment over the lifetime of your geothermal system.

To see if your home qualifies click here: