Originally, the Residential Renewable Energy Tax Credit enacted in 2005, only offered tax credits for solar electric systems, solar water heating, and fuel cells. The Energy Improvement and Extension Act of 2008 expanded the tax credit to include geothermal heat pumps.
Though the act was passed recently, tax credits are retroactive to Jan. 1, 2008, and expire Jan, 31, 2016. Homeowners may claim a 30% credit on qualified expenditures for a system that services a dwelling located in the U.S. and used as a residence by the taxpayer. The maximum incentive is $2,000. The home served by the system does not have to be the taxpayers’ principal residence. Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to connect a system to the home.
The geothermal heat pump unit must meet the requirements of the Energy Star program in effect at the time the installation is completed. The act also eliminates the solar-electric credit cap effective Jan. 1, 2009.