Reminder: May 1st is the deadline to file your Iowa Tax Credit Application for 2021 geothermal installations.
There are a number of incentives available when investing in an energy efficient geothermal heating and cooling system. Federal Geothermal Tax Credits are offered for residential and commercial installations. The Iowa Geothermal Heat Pump Tax Credit and Iowa Property Tax Exemption programs are available to Iowans for Iowa residential property installations. Many Iowa utilities also have geothermal rebate programs.
Iowa Residential Geothermal Incentives
The Iowa Geothermal Heat Pump tax credit is available for Iowa residential property installations. The Iowa Geothermal Property Tax Exemption is for the assessed value added to a residential property for qualified geothermal heating or cooling system installation. Many Iowa utilities provide geothermal incentives to customers. Be sure to check with your energy provider before installing your system as some require pre-approval to be eligible for their rebate.
Iowa Geothermal Tax Credit
The current Iowa Geothermal Heat Pump tax credit was modified by the 2022 Legislature. It is for geothermal heat pumps installed by December 31, 2023 and applications made prior to May 1, 2024.
The Iowa Geothermal Tax Credit is:
- Effectively a 6 percent credit (based on a formula of 20% of the federal residential energy efficient property tax credit which is 30% for tax years 2022 through 2022).
- For geothermal heat pump units installed between January 1, 2019 and December 31, 2023.
- Available to the resident/owner of an Iowa residence who installs geothermal at that residence.
About the program
The current program and process is for tax year 2019 through 2023. Information and links are on Iowa Geothermal Heat Pump Tax Credit page of the Iowa Department of Revenue website. Check the Iowa Department of Revenue website for most current updates.
- Before claiming the tax credit for tax year 2019 or later, taxpayers must apply and receive approval for the credit with the Iowa Department of Revenue. Claims made on the Iowa 1040 without such award will be denied.
- Application deadline is May 1 following the year of installation. For example, to receive the credit for 2022 installations, the application must be received before May 1, 2023.
- The total awards are capped at $1 million annually and a waitlist will be established when the annual cap is reached.
- The credit is awarded on a first-come first-served basis.
- Application approvals are contingent upon the availability of tax credits for any particular year.
How to Apply
Complete the Geothermal Heat Pump Tax Credit Application in the Tax Credit Award, Claim & Transfer Administration System (CACTAS) on the Iowa Department of Revenue website. If you do not have an account in the system, you will need to create one before you can access the application. Create your account by clicking the “Sign In” button in the top right corner of the Welcome to CACTAS webpage.
Paperwork needed for uploading during the application process includes:
- Invoice(s) for your installation
- Federal Form 5695 (Residential Energy Credits form for your Federal taxes)
- Tax Credit Applicant Certification Form (found in the Required Documentation section in the application).
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 Action 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.