New Tax Incentives Make It An Excellent Time to Install Geothermal Heat Pumps
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Are you or any of your clients considering geothermal for an upcoming project? If so, the expanded federal income tax credits contained within Inflation Reduction Act (IRA) could be all the incentive you need.
The recently amended IRA extends and significantly enhances tax benefits to commercial and non- taxable entities (e.g. schools, universities, charitable foundations, etc.) that install geothermal systems. Retroactive to 1/1/2022, there is now a 2-tier structure in place with a base credit rate of 6% and an increased rate of 30% for geothermal installations if any one of the following criteria is met:
The maximum net output capacity of the Geothermal Heat Pump (GHP) project is less than 1 megawatt (3.4 million Btu/h) of thermal energy. The Geothermal Exchange Organization (GEO) has submitted an analysis that equates this to a total installed system capacity of 445 tons for distributed zone-level GHPs or 285 tons for central plant GHPs. The Department of Treasury is currently developing guidance.
The project is installed under specific prevailing wage and apprenticeship requirements.
Construction of the project was commenced prior to 1-30-2023. So, any project started within 2022 qualifies for 30% of tax credits.
These credits will apply in full until 2034 when they start to decline incrementally.
The IRA has further sweetened the deal with some novel incentives. There is a bonus tax credit offered for geothermal equipment and installations that use domestically produced steel or iron. A new direct pay mechanism also provides a refundable credit equal to the GHP project ITC with any domestic content bonus. While the Department of Treasury continues to iron out the details, it does appear that GHP projects using ClimateMaster equipment will meet the criteria for the Domestic Content Bonus. Meeting these conditions qualifies for up to an additional 10% of tax credits.
The total tax credit can be increased up to another 10% for projects within qualifying energy communities for a total of 50%.
ClimateMaster has produced a new 2022 IRA Commercial Geothermal Tax Guide 2022 that explains these benefits and qualifying criteria in greater detail.
JMP is also here to help businesses and entities in areas where JMP represents ClimateMaster WSHPs, including North Carolina, South Carolina, Georgia, Alabama, the Florida panhandle, and parts of Tennessee. If you have a project that happens to be within any of these areas, please contact your local JMP representative. We are happy to meet with you and/or your owner clients to discuss how these benefits may impact your next geothermal project.
