As the world unleashes a new era of innovation designed to accelerate sustainable energy solutions, the heating and cooling industry is reaping the benefits. Homeowners and business owners are increasingly turning to ground source heat pumps (GSHPs), also known as geothermal heat pumps, to more efficiently heat and cool buildings while reducing energy consumption.  

Ground source heat pumps tap into the Earth’s underground temperatures—which remain relatively stable and consistent— to provide heating, cooling, and hot water in a building. They are very efficient and reduce energy consumption by up to 60 percent compared to conventional heating and cooling methods. They are suitable for all areas of the United States, use an extremely low amount of electricity even at maximum power usage and make no outside noise, among other benefits.  

Fortunately, there are a variety of tax incentives and rebates to help offset the upfront cost for installation. 

The Investment Tax Credit (ITC), which is part of the Inflation Reduction Act (IRA), provides residential and commercial property owners an opportunity to claim a significant portion of the total installation costs for ground source heat pumps. Owners of residential properties that install ground source heat pumps by December 31, 2032 can claim 30 percent of the installation cost. After that date, the credit will decrease to 26 percent in 2033 and 22 percent in 2034. Commercial property owners can also claim the 30 percent tax credit, and there is currently no expiration date set for commercial buildings. 

There is also an incentive called the Modified Accelerated Cost Recovery System, or MACRS, which allows businesses to depreciate the cost of installing a ground source heat pump system over a five-year period. This helps to reduce taxable income and offers additional tax savings for businesses and can be combined with the Investment Tax Credit. 

In addition, tax-exempt entities have an opportunity to turn energy credits into direct cash. This is particularly helpful for large facilities that need heating and cooling, such as public school districts and universities.  

 Furthermore, there are additional rebates and incentives offered by various states and utility companies for installing ground source heat pumps. It’s helpful to research incentives through local programs to take advantage of these savings. You can check the Database of State Incentives for Renewables & Efficiency for incentives in your area.  

The financial benefits that come from installing a ground source heat pump system run far and wide. Beyond reducing greenhouse gas emissions and reducing energy costs over the long term, there are tax savings to take advantage of. It’s important to cast a wide net by researching local and federal incentives. In addition, consult a tax advisor to properly claim your geothermal credits. Along with the financial rewards, there’s also a sense of pride that comes from doing your part to support a more sustainable planet in the future while reducing your carbon footprint.