Breaking Down the Federal Geothermal Tax Credit for Commercial Business | EnergyLink
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Breaking Down the Federal Geothermal Tax Credit for Commercial Business

federal geothermal tax credit

In 2008, the Energy Policy Act of 2005 was expanded to include geothermal heating and cooling systems to further the original acts mission of helping to solve energy problems and provide tax incentives for new and existing types of energy production. The federal geothermal tax credit was reinstated in 2018 after expiring in 2016, this time including commercial geothermal heat pumps as eligible energy systems. As of December 2020, the tax credit was extended to the end of 2023, making now the perfect time to begin construction on arguably the most efficient heating and cooling systems on the market.

What is the federal geothermal tax credit?

To offset the high upfront cost of geothermal heat pump installation and to incentivize renewable energy integration within commercial businesses, the federal government issued a tax credit for geothermal systems. Not to be confused with the 26 percent residential tax credit, the federal geothermal tax credit for commercial geothermal heat pumps is 10 percent. This 10 percent can be applied to the total geothermal system cost with no limit to the total credit amount. Also, the credit can be used to offset regular income taxes and or alternative minimum taxes (AMT).


Ground coupled or ground water geothermal equipment used as an energy source for heating and cooling is eligible to receive the federal geothermal tax credit. In order to be eligible for the federal geothermal tax credit your commercial business must meet a few criteria. First, your building must be located in the U.S. Second, construction on your geothermal energy project must begin on or before December 31, 2023. However, there is no time limit to when construction must be completed by. Finally, the original use must begin with the taxpayer meaning that after the equipment is installed the taxpayer must take legal title of the equipment.This includes having all necessary licenses and permits needed for the equipments operation.


There are environmental and financial benefits that come with installing geothermal equipment and taking advantage of the federal tax credit that comes with. Installing a geothermal heat pump provides a renewable energy source that will lower your company’s carbon footprint and utility bills. The 10 percent federal tax credit while in and of itself is a benefit can also be combined with solar and wind tax credits for optimal savings. Geothermal equipment is also eligible for accelerated depreciation and 100 percent bonus depreciation in the first year.

Interested in installing a geothermal heat pump?

EnergyLink’s experts will help guide you through the process of designing, building, and financing a custom-engineered geothermal system so your organization can get the best energy savings results. With the federal geothermal tax credit expiring soon, now is the perfect time to begin the process of installing a geothermal heat pump at your commercial business. Click the button below for a free quote or speak to an expert at (866) 218-0830.

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