November 20, 2013 Geothermal Tax Credit

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IRS Issues Guidance on IRC Section 25C and 25D

It has been brought to our attention that, on November 1, 2013, the IRS issued guidance on IRC section 25C and 25D, effective immediately!

Below is the actual Q&A excerpt about the ruling.   The full guidance is available by clicking HERE.  TJ’s strongly advises all of our customers to discuss the implications of this new guidance with your trusted tax advisor.

Q&A Excerpt from the IRS Guidance on the Geothermal Tax Credit

Page 11 of the Q&A document offers a section specific to Geothermal Heat Pumps:
.04 Geothermal Heat Pump Property
Q-31: A taxpayer contacts a seller to inquire about the installation of a geothermal heat pump to heat his home. The seller/installer informs the taxpayer that the following items must be installed in addition to the geothermal heat pump: heat exchange equipment in the ground outside of the house, a distribution system for the home, and a back-up emergency heating or cooling system. Which of these costs, if any, are eligible for the § 25D credit?
A-31: Only the cost of the heat exchange equipment in the ground outside the house can be eligible for the § 25D credit. The costs for the distribution system for the home and a back-up emergency heating or cooling system are not eligible for the credit because they are not incurred for qualified geothermal heat pump property. Section 25D(d)(5)(B) defines qualified geothermal heat pump property as any equipment that (1) uses the ground or ground water as a thermal energy source to heat the dwelling unit or as a thermal energy sink to cool such dwelling unit, and (2) meets the requirements of the Energy Star program in effect at the time that the expenditure for such equipment is made. Section 25D(e)(1) provides that expenditures for piping and wiring to interconnect qualified property to a dwelling unit are eligible for the § 25D credit. However, nothing in § 25D extends the credit to other auxiliary equipment such as distribution systems within the dwelling unit or backup emergency heating and cooling systems.
Q-32: Is a manufacturer of geothermal heat pump property that provides a certification pursuant to Notice 2009-41 required to become an Energy Star partner?
A-32: No. A manufacturer of geothermal heat pump property is not required to become an Energy Star partner to provide a certification pursuant to Notice 2009-41. However, the geothermal heat pump property must meet the requirements of the Energy Star program in effect at the time the taxpayer purchases the property. Furthermore, any manufacturer that provides a certification must retain in its records documentation establishing that the property meets those requirements and, upon request, make such documentation available for inspection by the Service.
Other statements within the Q&A document that are applicable to Geothermal Heat Pumps include:
A-4 (page 3) says the credit is available for an existing home or a newly constructed home.
A-8 (page 4) “When calculating the section 25D credit, a taxpayer may include the expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the qualified property and for piping or wiring to interconnect the qualifying property to the home.” This covers the wiring for the thermoset and the piping from the outside loop to the GHP unit inside the home.
A-9 (page 4) states that the sales tax on the qualifying property is part of the amount paid or incurred and may be included in calculating the section 25D credit.
A-12 (page 6) states that the taxpayer does not reduce the amount of the qualified expenditure by the amount of a state tax credit claimed by the taxpayer.
A-16 (page 6) states that a taxpayer may qualify for the section 25D tax credit without the manufacturer’s certification statement if the taxpayer can show the property meets the required efficiency standards.
A-21 (page 9) states that a taxpayer may claim the section 25D credit if a qualifying property is installed in or on an existing home or a newly constructed home. In the case of a newly constructed home, the taxpayer may request the homebuilder make a reasonable allocation or the taxpayer may use any other reasonable method to determine the cost of the property that is eligible for the section 25D credit.

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