Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q. Are there any federal tax incentives to installing geothermal energy to my home?
The federal Inflation Reduction Act, signed into law by President Joe Biden in August, includes tax credits and rebates for those who took steps to reduce their carbon footprint by purchasing energy-efficient appliances, electric vehicles and the like.
Those who install geothermal heat pumps into their homes from Jan. 1, 2022, through the end of 2032 are eligible to claim the federal “residential clean energy credit,” equal to 30% of installation costs. Beginning in 2033, the credit drops down to 26% and then down to 22% in 2034, before phasing out entirely in 2035. The eligibility for the tax credit is not tied to household income.
The average cost for installing a geothermal heat pump for a 2,000-square-foot home ranges between $10,000 to $30,000, depending on location, home size and available land.
“They are the simplest to design and install for new homes and offer an economically attractive and clean way to provide both heating and cooling needs for a building,” said Varun Rai, director for U.S. energy efficiency and net-zero carbon projects at Longevity Partners, a global multidisciplinary sustainability consultancy based in London. “For existing homes, especially with those with somewhat older HVAC systems, geothermal heat pumps could also be very attractive.”
In addition to the federal “residential clean energy credit,” a new income-based rebate program can further help customers recoup cost-related expenses to installing geothermal heat pumps.
The rebates, implemented through state programs, “reduce the price for the customer at the time of purchase,” Mr. Rai explained. Customers with income less than 80% of their state’s median income are eligible for up to $8,000 in rebates on geothermal heat pumps, while those with incomes between 80% and 150% of their state’s median income can claim up to $4,000 in rebates. Those with incomes higher than 150% of the state’s median income are not eligible for any rebates. Rebates will start after Dec. 31, 2022.
Mr. Rai advises consulting with several qualified local installers to fully understand the process and associated costs before investing in geothermal heat pumps. While the Inflation Reduction Act could cover a significant portion of that cost, it’s best to check with the pros on additional saving incentives that might be available to ensure money isn’t left on the table.
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