If you live in South Carolina, you missed the best chance to save money on a new Geothermal heat pump system, since state tax credits expired at the end of 2018. But don’t drag your feet in North Carolina or South Carolina, because 2019 may be your last chance to save 30% with Federal Tax credits on geothermal systems.
Federal Tax Credit Starts Declining in 2020
Since 2008, the U.S. Federal government has offered a renewable energy tax credit for installed geothermal heating and coolings systems. The tax credit actually expired at the end of 2016, but was reinstated retroactively to January 2017 in a budget agreement passed by Congress in February 2018. The renewed tax credit provides a 30% federal tax credit for systems installed through the end of 2019. If your system isn’t installed by the end of this year, then you’ll lose out on maximum tax credit savings. Tax credits shrink to 26% for installations in 2020 and 22% in 2021 before disappearing completely.
Federal Geothermal Tax Credit Basics
• 30% tax credit in 2019, 26% in 2020, 22% in 2021
• No Maximum credit
• Does not have to be principal residence
• System must be in process by December 31 of the year to qualify for that year’s percentage.
How the Federal Tax Credit Makes Geothermal a Great Value
Costs of geothermal systems vary greatly depending on the size of your home and the installation of the loop system. For purposes of illustrating the savings from the tax incentive, we’ll use the example cost of installing the geothermal system of $25,000. A system costing $25,000 would not be unusual, but installation could easily cost more or less.
Here’s what your actual installed price will look like after federal tax rebates in 2019.
$25,000 System Price
-$ 7,500 Federal Tax Credit
=$17,500 System Price with 30% Federal Tax Credit
Wait until next year (2020) and you’ll be spending more – $1,000 more for our example system.
$25,000 System Price
-$ 6,500 Federal Tax Credit
=$18,500 System Price with 26% Federal Tax Credit
Federal Tax Credits May Not Be Renewed and State Ones are Hard to Find
Don’t be fooled by the sudden reversal to bring back the federal geothermal tax credit in 2018. That was quite a switch from the way things have been trending recently and was essentially politicians making up for extending the solar tax credit, while leaving geothermal out during 2017. It took over a year and multiple attempts for bills trying to renew the federal tax credit to pass. While some in the new House of Representatives in 2019 are pushing a variety of energy saving measures, there was a feeling at the time of the solar credit renewal that it would not continue once it expires at the end of 2021.
The trend in state governments has been to let geothermal credits expire. North Carolina had a 35% tax credit for geothermal that expired at the end of 2015 and there has been almost no talk of brining it back. New Mexico’s 10-year tax incentive of 30% (capped at $9,000) was put in place in 2010 and is scheduled to sunset after 2020. So far, there isn’t much talk of renewal. Montana is the only other state with a tax credit for geothermal, but it is capped at $1,500. Even at a low capped dollar amount, Montana’s credit has been criticized and at least two attempts have been made to repeal it. Utah is the only other state with a tax credit for geothermal, with a cap of $2,000. With tax credit programs now expired in North Carolina, South Carolina and Iowa, incentives seem to be moving more toward rebates, grants and loan programs that often don’t provide as much financial help as previous programs. In North Carolina and South Carolina, no new incentive programs have replaced the expired tax credits for geothermal heat pumps.
Why it is important to act quickly
One of the most important requirements for the federal tax credit of 30% is that the geothermal heating and cooling system is being installed by December 31, 2019. So it is much better to start the process earlier in the year, because geothermal installations take longer than traditional HVAC systems to install. And our experience with past tax credits expiring is that we see increased demand at the end of the year, just before the deadline.
Geothermal Installation Timeline
Geothermal installations are more time consuming than traditional system replacements. It may take us a few days to schedule an air conditioner or a furnace replacement due to scheduling and unit availability, but in most cases we can completely install these in a day once we start. But Geothermal systems require a loop system to extract heat (or send it back to) the ground. See our how they work page for more information about the loop system. Proper load calculations have to be performed to determine how much loop will be needed. If you have a pond or lake front, you might not need to drill to bury the loop. But in most cases, drilling is needed and this takes time. The number of contractors with the equipment and expertise to drill what is needed for a geothermal loop is limited and they usually have busy schedules. Time will be needed to go over the lot, determine where utility lines, septic fields or other obstacles are and where the loop can be safely installed.
Additionally, not just any heating and air conditioning installer is qualified for geothermal installation. It requires special knowledge and our trained geothermal installers have undergone hours of training for installing these systems. We cannot and will not use installers without the required training and experience on our geothermal installations, so if you wait until too late in the year, we may not be able to schedule your installation in time for the end of the year deadline.
If you are considering installing a geothermal system in your present home or one you are building during 2019, we suggest you give us a call today at 803-327-2700. Contacting us now will allow us to give you a complete quote, and schedule your installation so that we can be sure you qualify for all the tax credits you deserve.