The American Recovery and Reinvestment Act of 2009 increased residential and business credits for various energy efficiency improvements, including geothermal.
Residential Federal Tax Credit - See note…
For geothermal heat pump systems placed in service after December 31, 2008 and before December 31, 2016, a taxpayer may claim a federal tax credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the U.S. and used as a residence by the taxpayer.
Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is on a new home, the ‘placed in service' date is the date of occupancy by the homeowner.
Qualified geothermal heat pump property includes any equipment that uses the ground or ground water as thermal energy sources to heat the dwelling unit or as a thermal sink to cool such dwelling unit. To qualify for the credit, the expenditure must meet the Energy Star program requirements in effect at the time the expenditure is made.
Expenditures include labor costs for onsite preparation, assembly or original installation, and for piping or wiring to interconnect a system to the home.
There is no maximum credit for systems placed in service after 2008. The maximum credit was $2000 for systems placed in service during 2008.
The credit cannot exceed the sum of (a) the sum of regular tax liability plus the AMT, over (b) the sum of other nonrefundable personal credits and foreign tax credit for the tax year. If the credit exceeds this limitation, the excess is carried to the following tax year.
• The home served by the system does not have to be the taxpayer's principle residence…vacation homes qualify.
• Expenditures which are properly allocated to a swimming pool, hot tub, or any other energy storage medium which has a function other than the function of such storage do not qualify for the credit.
• Use Form 5695 to compute the credit.
• Credit is authorized in Internal Revenue Code Section 25D.
• Energy Star products meet strict energy efficiency guidelines set be the US Environmental Protection Agency and the Department of Energy.
Business Federal Tax Credit - See note…
• A credit of 10% of the total investment (no maximum) is also available for a commercial system installation.
• Use Form 3468 to compute the credit.
• No credit is allowed for property unless it is depreciable or amortizable; its construction, reconstruction or erection is completed by the taxpayer or, if acquired by the taxpayer, its original use begins with the taxpayer; and it meets the official quality and performance standards in effect at the time of the acquisition.
• The basis of the property on which the credit is claimed must be reduced by 50% of the energy credit.
• Unused credits can be carried back one year and carried forward 20 years.
• The credit is subject to a five-year recapture rule. The amount recaptured is reduced 20% for each year the qualifying property is held.
North Dakota State Tax Credit - See note…
An individual, estate, or trust is allowed an income tax credit for installing a geothermal energy device in a building or on property owned or leased in North Dakota. To qualify, the device must be installed after December 31, 2008. The credit is equal to 3% of the cost of acquisition and installation and is allowed in each of the first five tax years starting with the year in which installation is completed. If an individual, estate, or trust holds an interest in a pass-through entity, such as a partnership or S corporation, that installs a geothermal energy device, the credit is passed through to the individual, estate, or trust in proportion to its interest in the entity.
A corporation is allowed an income tax credit for installing a biomass, geothermal, solar, or wind energy device in a building or on property owned or leased in North Dakota. The credit is equal to 3% (each year) of the cost of acquisition and installation and is allowed in each of the first five tax years, starting with the year in which installation is completed. A credit allowed to a corporation included in a consolidated North Dakota income tax return may be used to reduce the aggregate tax liability of all corporations included in the return. If a corporation holds an interest in a partnership (or a limited liability company treated like a partnership) that installs a device, the credit is passed through to the corporation in proportion to its interest in the entity.
For devices installed after September 30, 2008, an unused credit may be carried forward up to ten tax years. For devices installed before October 1, 2008, different carry forward periods apply.
If ownership of a device is sold immediately upon completion of installation, and the device is fully operational, the credit transfers to and may be claimed by the purchaser of the device.
This credit does not apply for a device installed after December 31, 2014.
Reference: N.D.C.C. 57-38-01.8
Note: This entire section of Geothermal Energy Tax Credits is the latest information given to us. We strongly recommend you talk with your tax professional.