New Federal Tax Incentive for Installation of Geothermal Systems

Home and commercial building owners who install geothermal heating and cooling systems are now eligible for federal tax incentives under the Energy Improvement and Extension Act of 2008, passed by Congress Oct. 3 as part of the economic recovery package.

The Energy Improvement and Extension Act offers a one-time tax credit of 30 percent of the total investment for residential ground loop or ground water geothermal heat pump installations, with a maximum credit of $2,000 for a single residence. The legislation also provides a credit of 10 percent of the total investment, with no maximum credit, for commercial system installations.

To qualify for the tax credit residential systems must meet Energy Star requirements, and legislation is retroactive to residential systems installed after Dec. 31, 2007. The tax credit for commercial buildings begins with systems installed after Oct. 3, 2008. Owners can file for the credit by completing the Renewable Energy Credits subsection on their 2008 tax return forms. No proof of purchase is required. However, in case of an audit, owners are encouraged to keep a detailed invoice of their purchase on file. The contractor who sold and installed the product should list the purchase as a “Geothermal Heat Pump” on the invoice and note that the unit “Exceeds requirements of the Energy Star program currently in effect.”

Geothermal systems tap the free, completely renewable, supply of solar energy stored just a few feel below the Earth’s surface and use that energy to drive heating and cooling system in both residential and commercial buildings. In addition to utility, state and now federal tax incentives that enhance the affordability of geothermal systems, this cost-effective, environmentally friendly technology offers a host of benefits that includes:

• Free, renewable supply of solar energy
• Efficiency ratings up to five times higher than those of ordinary heating and cooling systems
• Savings on utility bills up to 70 percent
• Reduced carbon footprint since the system burns no fossil fuels More even distribution of heating and cooling for improved comfort
• Improved indoor air quality
• Quiet operation with no noisy outdoor units to disturb the environment or neighbors
• Safe operation that requires no open flame or fuel storage tanks
• Less maintenance
• Increased system longevity (an average life span of 24 years vs. 15 for conventional air conditioners and 20 years for fossil fuel furnaces)

To learn more about the new federal tax credits, visit or contact your local tax professional.

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