How do I qualify for the geothermal heat pumps tax credit?

Question

I installed a qualified geothermal unit this year because my existing geo unit failed and needed replaced.  I have a homeowners insurance policy that actually covers the replacement of the unit.  Can I still claim the cost of this installed unit as an energy efficiency improvement?  Do I have to claim the insurance as income?

LeahB · Answer

Great question! The IRS allows those who made energy saving improvements to their home located in the United States to take the Residential Energy Credit but this is not without its limitations.

Because this was a replacement and not an improvement, it is likely the installation would not qualify for the credit.

The IRS also outlines for the purpose of the credit costs are treated as being paid when the original installation of the item is completed, or in the case of reconstruction, when your original use of the reconstructed home begins.

Reference "Who Can Take the Credits" and "Costs": IRS Instructions Form 5695 Residential Energy Credits

Another thing to keep in mind is if the insurance covered the replacement, you typically would not have a cost as this would have been handled by the insurance company.

2OO · Answer

does it matter that i’m not the original owner and the original Geo was 22 years old?

KristineS · Answer

Hi 200,

Thanks for joining our Live Event today!

If you previously had a geothermal unit, which would already be considered energy efficient, a  replacement with another geothermal unit isn't upgrading for this type of credit.

If insurance paid for the cost to replace the unit, that's not considered income you'd report, unless you made more with the payout than it cost to replace the unit. You were 'made whole,' as if the unit was never replaced.

Here' more general information on geothermal units here:

https://www.energystar.gov/about/federal-tax-credits/geothermal-heat-pumps