Tax Incentives

American Ecothermal’s Geothermal systems qualify for renewable energy federal tax credits.

As part of the American Recovery and Reinvestment act of 2009 homeowners and business owners can receive significant tax credits in return for their investment in a geothermal system. For example, an American Ecothermal system would qualify for a 30% tax credit based on the installation cost of a residential geothermal system or a 10% tax credit for a commercial system, when installed before December 31, 2016. If you are business owner and are interested in learning more about how commercial geothermal system tax incentive work give us call at 603.319.1802 or send us an email. 

Please find below some important key points we have found in section 25D of the Internal Revenue code:

The tax credit may be claimed for spending on “qualified geothermal heat pump property” installed in connection with a new or existing dwelling unit located in the United States and used as a residence by the taxpayer. It does not have to be the primary residence. 

The credit can only be claimed on spending for property that is “placed in service” during the period from 2008 to 2016. In general, property is considered to be placed in service when the original installation is completed. However, if the geothermal heat pump property is part of the construction or reconstruction of a house, it is considered to be placed in service when the taxpayer takes up residence in the new or renovated house. 

 For property placed in service after January 1, 2009, there is no limit on the amount of the tax credit that can be claimed. The tax credit can be used to offset both regular income taxes and alternative minimum taxes (AMT). If the tax credit exceeds the income tax liability, the remaining balance can be carried forward into future years.

Amounts that are spent on improvements are added to the tax basis of the house. A higher tax basis generally means there is a smaller taxable gain when a house is later sold. Spending on geothermal heat pump property adds to the tax basis, but must be reduced by the amount of the tax credit received.If a dwelling unit serves a dual purpose, such as for a home office in the dwelling, the spending may have to be allocated between residential and business use. If the portion considered residential spending is at least 80%, then all the spending qualifies for the residential credit. There is a 10% tax credit available for business use of geothermal heat pump property, and 5-year MACRS accelerated depreciation.

IRS Form 5695 (2008) is used to claim the Residential Energy Efficient Property Credit for 2008. Form 5695 for 2009 has not been published yet.

Please consult your tax advisor to discuss your potential tax incentives.