IMPORTANT INFORMATION: Iowa geothermal tax credits are in place for installations through December 31, 2023.
Iowa Residential Geothermal Incentives
Geothermal Heat Pump Tax Credit
Taxpayers who have a geothermal heat pump installed on their residence on or after January 1, 2019, but before January 1, 2024, can now apply for the Geothermal Heat Pump Tax Credit with the Department of Revenue. Deadline to submit an application is May 1 following the year of installation. Taxpayers must first apply for a tax credit award with the Department before claiming a Geothermal Heat Pump Tax Credit for tax year 2019 and later; claims made on the IA 1040 without an award will be denied.
The credit is only allowed on residential properties located in Iowa. To qualify for the Geothermal Heat Pump Tax Credit, the resident of the home where the heat pump is installed must be the applicant. The credit is equal to 20% of the federal residential energy efficient property tax credit allowed for geothermal heat pumps provided in section 25D(a)(5) of the Internal Revenue Code.
Tax credits are awarded on a first-come, first-served basis. Completing the application does not guarantee that you will be awarded a Geothermal Heat Pump Tax Credit. Tax credit availability and application approvals are contingent upon availability of the tax credits in that particular tax year. Once awarded Geothermal Heat Pump Tax Credits reach the maximum amount of tax credit awards ($1,592,699 in 2022), the Department will establish a waitlist, also on a first-come, first-served basis. An application on the waitlist, as described above, shall not constitute a promise binding the state.
Department of Energy unveils new energy savings hub website. For all the latest information on federal incentives for geothermal, click this link: https://www.energy.gov/save
How to Apply
The application for the Geothermal Heat Pump Tax Credit can only be completed online using GovConnectIowa. To submit an application, create a GovConnectIowa Logon. After logging in, navigate to the I Want To… tab and select Apply for a Tax Credit from the Tax Credits panel. You will need to complete the information requested on the application, upload a copy of your invoice and download, sign, and then upload the certification document available within the application.
Installations on or before December 31, 2018
The Geothermal Heat Pump Tax Credit was previously available for installations beginning on or after January 1, 2012 through December 31, 2016. The credit was equal to 20% of the federal residential energy efficient property tax credit allowed for geothermal heat pumps provided in section 25D(a)(5) of the Internal Revenue Code. For installations during these earlier years, the credit did not require an award and the taxpayer could claim the credit, if eligible, on the IA 148 Tax Credit Schedule filed with the individual income tax return.
The Geothermal Tax Credit was available for installations beginning on or after January 1, 2017 through December 31, 2018. Taxpayers filing a claim for the Geothermal Tax Credit were required to submit Form IA 140 in addition to the IA 148 with the individual income tax return. The tax credit equaled 10% of the taxpayer’s qualified expenditures on equipment that uses the ground or groundwater as a thermal energy source to heat the taxpayer’s dwelling, or as a thermal energy sink to cool the dwelling. The equipment must meet the federal energy star program requirements in effect at the time the expenditure is made. The dwelling must be the taxpayer’s residence and be located in Iowa.
Federal Residential Geothermal Tax Credits
The Inflation Reduction Act (H.R. 5376) was signed into law in August 2022. The bill extends the credits for all Section 25D technology installations at the following rates:
- 26% (2021)
- 30% (2022-2032)
- 26% (2033)
- 22% (2034)
- ZERO (2035 and after)
The credits are not refundable. The credits can be carried forward for a maximum of ten years. Distribution equipment such as ductwork or radiant flooring are not eligible for the credit.
Many of the implementation details of the programs in the Inflation Reduction Act are currently in the regulatory process.
Find more information about eligibility and Federal Form 5695 on the Internal Revenue website.
Federal Commercial Geothermal Tax Credits
The Inflation Reduction Act extended the Federal Investment Tax Credit (Commercial Installation Credits – IRC Sec. 48) under a two tier structure. There are several outstanding implementation detail questions that will require regulatory and possibly legislative clarification.
Iowa Geothermal Property Tax Exemption
The Iowa Geothermal Property Tax Exemption is for the value added by any new or refitted construction or installation of a geothermal heating or cooling system on residential property. Unlike other exemptions, it does not have to be applied for in the year it was first added. The exemption runs for 10 years after it is applied for. Signup deadline is February 1. See Tax Credits and Exemptions on Iowa Department of Revenue website. Scroll to down to the Iowa Geothermal Heating and Cooling System Exemption.
The Iowa Geothermal Association (IGA) does not provide legal, tax or accounting advice; the information provided is intended to be general in nature; and visitors to the IGA website should consult their own professional tax, accounting and legal advisors on individual tax matters.
The links below provide information on state, local and federal incentives that promote energy efficiency. Please be aware that your eligibility for an incentive will depend upon meeting specific criteria and it is recommended that you to consult with your tax preparer.
Check your Iowa utility’s website for their incentive programs for geothermal or ground source heat pumps.
The following link to a U.S. Department of Energy website also provides a useful resource that is a good companion to the links on this page. All offer information for the states on energy tax credits, rebates and savings but information filters provided at http://energy.gov/savings make it easy to sort by type. Just select “Geothermal Heat Pumps” for any state or select “All” for a listing of every state that has some sort of financial assistance for geothermal heat pump installations.