Federal Tax Incentives for Commercial Geothermal Heat Pumps
Geothermal energy is becoming increasingly popular as a renewable energy source for commercial buildings. The Inflation Reduction Act (IRA) of 2022 offers federal tax incentives for commercial geothermal heat pump projects, intending to lower the nation’s carbon emissions. This page will discuss the benefits of these tax incentives and how businesses can take advantage of them.
Benefits of Tax Incentives
The tax incentives for commercial geothermal heat pump projects are significant. Here are some of the benefits that businesses can expect:
30%
Bonus Rate
10%
Bonus Rate for Domestic Content
$5/ft2
Bonus Rate for Domestic Content
5 Year
Accelerated Depreciation and a 1-Year Bonus Depreciation
-
Who’s Eligible
To be eligible for these tax incentives, businesses must use ground or groundwater as an energy source for heating and cooling their building. The system must be located in the United States, and only the owner of the system can claim tax credits or depreciation deductions. After installing the equipment, the taxpayer must take the legal title and have all necessary licenses and permits for its operation.
Starting in 2023, commercial taxpayers can transfer the tax credit to other taxpayers under section 6418. For the EPAct 179D tax deduction, the commercial building owner can take the deduction. For non-profit, government, or tribal government buildings, the designer can take the deduction.
-
How to Claim the Commercial Geothermal Tax Credit
To claim the commercial geothermal tax credit, businesses can use IRS Form 3468. The tax credit can offset regular income taxes and individual alternative minimum taxes (AMT). If the tax credit exceeds the income tax liability, the loss can be carried back one taxable year, and the remaining balance can be carried into future years.
To claim the 5-year and 1-year bonus depreciation, businesses can use IRS Form 4562. Commercial building owners can take the 179D tax deduction for building projects completed since January 1, 2006. A standard form for 179D will be available within IRS Form 7205. To claim a 179D deduction, use the “Other” deduction line. IRS Form 3115 is used for catch-up on all prior year unclaimed EPAct 179D deductions. Designers of government projects must amend prior year returns and can only adjust the prior 3 years.