Geothermal heat pump credit

[Jesse]

The Stimulus Bill signed by the President on February 17th eliminates the $2,000 limit on the 30% tax credit for homeowners who install geothermal heat pump systems in 2009 and later years. For systems placed in service in 2008, the $2,000 lilmit still applies So, for example, if a homeowner pays $15,000 for a geothermal heat pump system installed in 2009, a tax credit of $4,500 could apply.

What costs are included in the "installed"? Excavating? A taxpayer called today and is talking $50,000 for excavation, drain tile and cost of system.

[mblatour]

I'm very interested in this as well....

We as tax preparers will need to understand this potentially "huge" deduction coming our way. I actually have this coming at me from both sides because I am a tax preparer and also a co-owner in a geothermal heat pump installation business. I was emailed by my manufacturer (Econar; cold climate heat pumps) with the following information:

"Qualified geothermal heat pump property costs are costs for qualified geothermal heat pump property installed on or in connection with a home located in the U.S. Qualified property is any equipment that uses the ground or ground water as a thermal energy source to heat a home or has a thermal energy sink to cool a home" - Units must also be Energy Star certified.

Jesse made a very good point about what IS actually included in the costs. My husband and I put in a system for each of our two personal buildings (house with attached garage and separate garage). Between excavating, the two loop fields/supplies, the heat pumps, and all connecting pumps, piping and so on, we had close to $30,000 into our system. Now keep in mind that this was at our COST for being a dealer. We saved about 30% on the materials and provided our own labor. We a total of 10 tons between both systems that are heating and cooling 5600 total square feet. Whereas a more typical system might be more around 2500 square feet and 4 tons in our area.

What makes things more difficult is that many systems require modification of ductwork (for a retrofit existing home) to enlarge it in order to handle the velocity these systems push through. That is part of our bid we do for our clients as well. Our last job added $8,000 to the job for ductwork. In new construction situations, you will need all new ductwork, or in floor heat tubing, which involves a lot more expense. Many of the companies out there will do all of this work themselves (if they are a heating/plumbing contractor) or they may do part of it and then subcontract out the rest to others.

The last system we installed was in December '08 and cost the customer $30,000. But that included the $8,000 for ductwork and $3,500 for excavation. These parts of the job are absolutely necessary to get the entire "system" up and running, therefore should be included as part of the overall installation cost for purposes of the credit. That customer qualfied for the old $2,000 credit; but in '09, it could be $9,000. BIG DIFFERENCE!!

I am concerned as to what will and will not be included in this credit. The difference could mean tens of millions of dollars in additional credit across the U.S. We as tax preparers need to know how to field through the "bills or receipts" we will get for these systems from our clients for purposes of the credit. Most companies do not separate out each portion of the job because they do not want you to know exactly what they are charging for what.

On the other side, I need to know as a contractor what I should be telling my customers can be taken on their '09 (and later) income taxes for credit. It makes a huge difference to them in determining the affordability of a system. Our area power company gives away additional rebates for these systems as well, based on the tons of the unit(s). We received $200 per ton, which was equal to $2,000 back. It all helps recoup the cost of the system, which in turn makes it more sellable.

I would like to see other thoughts on this. I'm keeping on top of it as much as I can but I know there must be others out there who know more about it. This needs to be figured out and soon because people are going to be led into buying a system all the while hoping to get this HUGE credit back. They might not be able to get as much as they thought. Or will they?

I welcome your thoughts and opinions. Sorry for the length of my post.

Becky

[Jesse]

Thanks for the reply.

Do you provide a Tax Credit Certificate to your customers?

I found some information from GeoComfort that has a Tax Credit Certificate for tax year 2008 and tax year 2009 which provides the model number, Dealer name and address, Installation date and Total installed cost. There is, of course, an asterick that states:

"All information is based upon our understanding of the legislation. Consult your local tax professional for the latest information."

Why not, everyone else blames the preparer!

I also found 20 different systems that qualify - is there more that do not qualify? This absolutely blows my mind. I just want to work with income tax issues!

[mblatour]

Jesse,

I'm sure where you got your list from is the same as the link below, but I'll post it anyway:

http://www.energystar.gov/index.cfm?c=geo_heat.pr_geo_heat_pumps

From this link, go under Resources on the right side and click on Manufacturer list. This is the official list of accepted products/manufacturers. Anything that's not on this list, does not qualify.

There are many out there that DON'T. If they don't meet the required COP efficiency rating, they are not Energy Star certified and do not qualify for the credit.

We do not provide a certificate to our customers, but we do provide an invoice/receipt with all of the necessary information listed on it to apply for the credit. We might just start printing out a copy of the Energy Star page that shows that our heat pumps are qualified and provide that to the customer so that they can apply for the credit with the proper information at hand.

Being a tax preparer myself, I'd sure like to have that handy. I can see self-preparers out there just saying to themselves, "I put in this super efficient, expensive heat pump, it must qualify for the credit" and just take the money. The downside to all of this is that there are many units out there that are 250% efficient (which is really efficient compared to a 90% efficient furnace), but it needs to be the ones that are 350% and up in efficiency to be Energy Star certified.

They can blame the preparer all they want. I for one will have my butt covered in all instances. Especially when it comes to taking such a HUGE credit. Professional preparers out there would be fools not to do the same. Thanks to the government for throwing this confusing mess into our laps, as usual.