Tax Incentives for Geothermal Heating and Cooling
States often use tax incentives, such as property and sales tax incentives, and tax credits to offset the costs of purchasing, installing, or owning a geothermal heating and cooling installation.
Property Tax Incentives
More than half of all states offer property tax incentives; yet only about a dozen apply to geothermal heating and cooling technologies like direct-use applications or ground source heat pumps (GSHP).
Ten states offer property tax incentives for geothermal direct-use applications. Most state property tax incentives for GSHP are also available to direct-use systems; however, direct-use appears to be eligible based on the general definition given for geothermal resources in many policies rather than on explicit definitions, making eligibility uncertain.
About a dozen states offer property tax incentive for GSHP systems, which typically fully exempt the project from property tax. A few states impose limitations or restrictions on the incentive, including:
- Montana: The value of the system eligible for tax relief is capped
- New York: The incentive to residential systems is restricted
- North Dakota and South Dakota: The number of years the equipment is exempt from property tax is limited
- South Dakota: Only a partial abatement is provided
Sales Tax Incentives
Sales tax rates vary by state and locality, but most rates are in the 4% to 6% range. County, municipal, or special district level sales taxes authorized in some states may add less than 1% to as much as 8% in sales tax to a purchase.
Connecticut is the only state with a sales tax exemption that may apply to direct-use applications. The state's sales and use tax exemption for solar and geothermal systems applies to geothermal resource systems, but the vague language makes eligibility uncertain. Sales tax incentives in other states that are applicable to geothermal systems specifically target either geothermal electricity generation facilities or GSHP.
In Connecticut, Maryland, Massachusetts, and Rhode Island, GSHP is among a broader list of renewable energy technologies that qualify for a sales tax incentive, although only residential GSHP qualifies for the incentive in Massachusetts. North Carolina has a sales tax holiday for ENERGY STAR® appliances on specified days in November, which would presumably include ENERGY STAR-certified GSHP.
Tax Credits
Tax credits are fairly easy to administer compared with other financial incentives because a special funding mechanism or annual appropriation is not required. Nearly half of all states offer tax credits for renewable energy systems and/or energy efficiency upgrades; however, GSHP are eligible in only nine states and direct-use geothermal is eligible in just four. Tax credit levels, maximum allowable credit, and technology eligibility vary widely by state, as summarized in the table below.
| State | Residential: Tax Credit (Maximum $) |
Commercial: Tax Credit (Maximum $) |
Ground Source Heat Pump Eligibility |
Direct-Use Eligibility |
|---|---|---|---|---|
| Georgia | 35% ($2,000) | 35% ($100,000) |  |
|
| Idaho* | Tax deduction | Not applicable | |
|
| Kentucky | 30% ($250) | 30% ($1,000) | |
|
| Montana | 100% ($1,500) | Not applicable | |
|
| North Carolina | 35% ($8,400) | 35% ($2.5 million) | |
|
| North Dakota | 15% (no maximum $) | 15% (no maximum $) | |
|
| Oregon | $0.60/kWh 1st-yr. savings ($900) | 35% ($3.5 million) for GSHP; 50% ($10 million) for direct-use |
|
|
| Rhode Island | 25% ($1,750) | Not applicable | |
|
| Utah | 25% ($2,000) | 10% ($50,000) | |
|
*Idaho's incentive is a tax deduction rather than a credit. 100% of the project cost may be deducted from taxable income over four years, up to the maximum deduction of $20,000.
Learn about other policy options.
