If you are considering installing an energy efficient geothermal heat pump in your home but are put off by the cost, don’t forget to factor in the effect of the federal tax credits. Until December 31, 2016, all Energy Star rated geothermal heat pumps qualify for a 30% tax credit. The credit is available for installation of a geothermal heat pump in a newly constructed home or replacement of the heating system in an existing home.
The credit applies to the cost of the equipment and also the installation and labor costs and there is no upper limit. Geothermal heat pumps installed in second homes also qualify for the credit although rental homes are currently excluded.
Geothermal heat pumps are one of the most energy efficient residential heating and cooling systems currently available, but they are significantly more expensive than standard air source heat pumps or other heating systems such as a traditional natural gas furnace.
However, they are so efficient that homeowners can cut their heating and cooling costs at least half depending on where they live and cost of fuel or electricity in their area. Even with these savings on energy costs, it can take many years for a geothermal heat pump to pay for itself, but the 30% tax credit dramatically shortens the time it will take to recover the expense of a new heat pump.
Remember that a tax credit is a dollar for dollar reduction in your tax bill, so installing a qualified geothermal heat pump at a cost of $15,000 will save you $5,000 in federal tax. In addition, many states offer tax credits for even greater savings. With the federal tax credits, a geothermal heat pump can pay for itself in a short time and you can then enjoy year after year of saving money on your energy bill.
