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Advice provided by: Sarah Gudeman, LEED AP, EIT, Morrissey Engineering, Inc.
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Monte asks: We installed a horizontal closed loop geothermal system this year. Our reasoning was the energy efficiency and the 30% tax credits. Unfortunately after the system was installed we discovered our system does not qualify. I'm not clear why the system is ineligible. The installation contractor and the tubing manufacturer, RHEAU, did not mention the system would not qualify. What suggestions do you have for us to receive the tax credit? FYI, our local coop utility did approve the system and we received a $3,000 rebate.

Answer: Monte, I suppose my first question is whether this is a residential or commercial property. But, since this isn’t necessarily a dialogue, I’m going to operate under the assumption that you’re referring to a residence.

Unfortunately I’m also curious about how you discovered that the system allegedly doesn’t quality … but I suppose that’s a topic for another response. Because as long as you comply with the requirements below, I’m somewhat stumped as to why your system would not qualify.

According to http://www.dsireusa.org, the Residential Renewable Energy Tax Credit was established by the federal Energy Policy Act of 2005. The Energy Improvement and Extension Act of 2008 extended the tax credit to small wind-energy systems and geothermal heat pumps, effective January 1, 2008. The credit was further enhanced in February 2009 by The American Recovery and Reinvestment Act of 2009, which removed the maximum credit amount for all eligible technologies (except fuel cells) placed in service after 2008. Geothermal heat pumps must meet federal Energy Star requirements at the time of installation to quality, the maximum incentive for which is as follows:

- Geothermal heat pumps placed in service in 2008: $2,000

- Geothermal heat pumps placed in service after 12/31/2008: no maximum

A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States and used as a residence by the taxpayer (although the home served by the system does not have to be the taxpayer’s principal residence). 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. Expenditures include labor costs for onsite preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year.

If you’ve already applied, I would be inclined to think that your system was placed in service in 2008, in which case you’d only be eligible for the credit of $2,000 instead of 30%. But if your system was placed in service after 12/31/2008 then it’s likely you haven’t applied yet since you would need to file the 2009 IRS Form 5695 and submit it with your 2009 taxes (by April 15, 2010). Refer to the following address for more information on how to apply for the tax credit: http://energystar.custhelp.com/cgi-bin/energystar.cfg/php/enduser/std_ad...

If you’d like to provide more insight as to why you were told your system was ineligible I’d be curious to hear more. Hopefully this helps.