Tax Credits – Not Just Solar
by Joel Zook, Energy Planner
We’ve talked a lot here at the energy district about the phase out of the solar tax credits, but it’s important to know that there are other tax credits for energy efficiency measures and geothermal heating and cooling systems that will also soon come to an end.
First off, a little known tax credit was revived earlier this year that allows homeowners to claim a tax credit up to $500 on energy efficiency measures including insulation air sealing, water heaters, windows and doors, furnaces and heat pumps. It’s set to EXPIRE THIS YEAR – Get it while you can!
The tax credit can be the greater of 10% of the cost of insulation (including air sealing), certain Energy Star certified roofs that stay cooler in summer, and exterior windows and doors. Only the material costs can be included in the 10% tax credit, labor expenses are ineligible.
A second category of tax credits is a set amount per piece of equipment. Credits include $300 for an electric heat pump water heater, $300 for an air source heat pump or air conditioner and $150 for a qualifying furnace or boiler.
It’s important to note there is a $500 lifetime cap on these tax credits. If you claimed this same tax credit previously, you will be ineligible for any new credits over the lifetime cap of $500.
Interestingly enough they made this credit retroactive, so if you made any of these improvements after January 1, 2017 you may be eligible for a tax credit on that work. See more details here on the Energy Star website and consult your tax preparer for details.
The first thing to understand about the geothermal tax credits is that they are different for homes than for businesses. I’m addressing both so skip to the section you’re interested in and ignore the other to keep from getting them mixed around
The federal tax credits for residential geothermal are set to phase out on the same schedule as solar. Systems installed in 2020 are eligible for a federal tax credit equal to 26% of the total cost of the system. Additionally, Iowa has a state tax credit 20% of the federal credit (effectively 5.2% of the total system cost in 2020 and 4.4% for systems installed in 2021). The Iowa tax credit is tied to the federal credit so when the federal credit expires, the state credit will as well.
The Iowa Geothermal Association has a resource page for residential geothermal credits
The Federal Tax Credit for businesses installing geothermal systems is 10% of the total system cost and runs through the end of 2021. There is no Iowa geothermal tax credit for businesses. A reminder that businesses can take advantage of accelerated depreciation to get a tax deduction on both state and local income tax. The 2017 Tax Cuts and Jobs Act allows for 100% bonus depreciation for systems installed between 2017 and the end of 2022.
All these tax credits are a great opportunity to pair with utility rebates. Alliant has announced a doubling of specific rebates running from July 1 to the end of 2020. There’s a real opportunity to get a great deal on heat pump water heaters, geothermal systems or an air source heat pump.