Last Chance for 30% Federal Tax Credit
There is no tax credit extension
Through December 31, 2016 home owners who install Energy Star certified geothermal heat pumps are eligible for a 30% federal tax credit.
Although the geothermal industry fought hard and continues to fight to have it extended, there is no extension. You have under 200 days to take advantage of this huge discount.
Who should pay attention
1. Homeowners who plan to stay in their current home for at-least 7 years heating with propane or heating oil.
2. People planning on building a new dream home in 2016
3. Those who know they need to replace their aging HVAC system very soon.
If you have access to natural gas – geothermal is probably not feasible financially. If you want to do it for the comfort and environmental reasons I commend you.
If you’re not familiar with geothermal I’ll provide the same explanation I give family and friends which comes from studying the technology and the industry for 7 years. Here it goes.
Its Not Rocket Science
A geothermal heat pump is the optimal way to heat AND cool a home, I have it in my own home. There is an indoor portion, usually in the basement that is the size of a regular furnace. There is the outdoor portion, which are 1-2″ high density plastic pipes buried in your yard (usually installed with a well drilling rig drilling a 6″ hole a few hundred feet deep). If you want to get caught up in the ‘how it works’ , knock your socks off. Google until you drop but the simple fact is… they work! These systems work for hundreds of thousands of people, they have been around for decades. IT IS NOT ROCKET SCIENCE! Don’t make this a science project, you don’t need to be an engineer to understand these systems are a smart investment in many cases.
They use electricity to run, a little electricity. I heat and cool my home for 1/4 the price of my neighbors who heat with propane. I never turn down the thermostat in the winter or turn it up in the summer, its always 70.
The catch is $$$.
Whats the catch? $$$. Money. Upfront cost is the “catch”. The outdoor portion costs about $8k-10K for a ~3,000 sqft home. Why? Drilling. Drilling is expensive. Think of it this way – you are pre-paying for heating fuel in advance at a super discounted price. If propane companies made you purchase 30 years of propane and store it in a tank in the ground what would that cost?
So only 8K-10K? No. That’ just the outdoor portion called a loop field. You still need to pay for the indoor portion which includes not only the heat pump and the installation, but all of the additional pieces of the puzzle like duct work, electrical, and removal of the old system. It adds up. For my home I spent $30K total, 20K on the inside, 10K on the outside. For comparison sake I was quoted at 15K for a conventional propane furnace and high efficiency air conditioner.
You need the money upfront – most people finance these through a HELOC. When you file your taxes you submit an additional form (Form 5695 – Residential Energy Credits). Here is rough example of how the tax credit is applied: I make $80,000, I owe $20,000 is taxes to the federal government. I say wait a minute! I installed a geothermal system! It cost me $30,000. 30% of 30K is $9,000. So from the $20,000 I owe in taxes I can subtract $9,000 thus my new tax bill is $11,000.
***Note: The tax credit can be used to offset both regular income taxes and alternative minimum taxes. If the tax credit exceeds the income tax liability, the remaining balance can be carried forward into future years. Both the § 25C credit and the § 25D credit are nonrefundable personal tax credits. A taxpayer claiming a nonrefundable credit can only use it to decrease or eliminate a tax liability. A taxpayer will not receive a tax refund for any amount that exceeds the taxpayer’s tax liability for the year.
Systems must be installed in 2016 and contractors are getting booked out.
In order to qualify for the credit your new system must be in operation by December 31, 2016. Many good contractors are getting booked out through the end of the year quickly.
Do not wait to talk with a contractor and get the ball rolling, you’ll miss the dead line.
Think of it as an investment. Lower your fixed cost of living.
Lowering your fixed cost of living (especially those planning retirement) might be a much wiser choice than letting your money sit idle at today’s interest rates or in today’s uncertain market. You have under 200 days to leverage the government for 30% of the cost. Get in touch with a qualified geothermal contractor.