Geothermal Heat Pump Rebate

[CTHusky72]

We installed a geothermal heat pump in September 2022 and applied for a Mass Save rebate in October.  According to Form 5695 instructions, my costs that I include on the form must be reduced by the amount of that rebate.  However, Mass Save has sat on our application for 4 months now and, even though the online status for the rebate shows that the application is "Non-Compliant", whenever I call, the representative tells me that it's not "Non-Compliant" but is actually "In-Process" and I should eventually get it.

So, what do I enter for costs, what I paid or what I paid minus the rebate?  If I enter what I paid and eventually get the rebate, how do I correct it?  While this would seem to me to be a common occurrence (pay in one year, get a rebate in the next), I have been unable to find any information related to our situation.

[Vanessa A]

Your options are hold off filing until closer to April 18th, to see if you actually get the rebate, then you would be able to accurately report your cost knowing what the rebate amount will be.

However, depending on the cost of your heat pump and the amount of your rebate, deducting the rebate may not affect the amount of your energy credit. The rebate is maxed out for 2022 at $500.  It is 30% of your costs.  This means, if you spent $5,000 on the heat pump and the rebate you are waiting for is $1,000, you would enter $4,000 as your cost.  Thirty percent of $4,000 is $1,200 which is more than the maximum rebate of $500.  So, it is very possible that reducing your cost by the rebate amount will not have any affect on your credit amount so filing with the assumption you are getting the rebate may be the easiest way to go. 

[CTHusky72]

Thanks but I think you are mistaken. There is no limit on the credit for a geothermal heat pump (see Part 1 of Form 5695) except that it’s nonrefundable (can’t exceed the total tax).  You can verify this by entering a reasonable cost of a geothermal system (>$50,000) in TurboTax. The actual rebate from Mass Save is $15,000 which would change the credit by $4500 which IS significant. 

[AmyC]

The Instructions for Form 5695 state in Residential Clean Energy Credit (Part I):

You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, biomass fuel property, and fuel cell property.

Line 6a is the total paid while line 6b has you multiply by 30% to get the credit. See Form 5695.

Unless your state rebate is larger than 70% of the cost, it will not affect your return. 

[CTHusky72]

Thanks, but I don’t understand what you mean.  Yes, line 6a is the total cost but according to the instructions for 5695, “If you received a subsidy from a public utility for the purchase or installation of an energy conservation product and that subsidy wasn't included in your gross income, you must reduce your cost for the product by the amount of that subsidy before you figure your credit.”. To me, this means that line 6a is reduced by the rebate before the 30% credit is calculated. For example, if the cost of the system is $45,000 and the rebate is $15,000, the total paid for the system is $30,000 and the credit is $30,000 x .3 = $9,000.  Without the rebate, the cost is $45,000 and the credit is $45,000 x .3 = $13,500.  I don’t know what you meant by “Unless your state rebate is larger than 70% of the cost, it will not affect your return”.  Could you provide a specific example of what you meant using my example numbers?

[DaveF1006]

There is a $4500 difference in the credit thus is significant. I suggest reporting $30,000 as the cost to receive either a $9000 credit or to the amount of your tax liability for the year, whichever is less.

As  far as what was mentioned about your rebate being more than 70% of the cost, I could find no reference regarding this so I can't provide an example for you. if you have enough tax liability to absorb the full amount of the credit, you will be credited for the full amount of the credit. If not, then the credits will be carried forward until the entire amount of the credit is recaptured by you.

@CTHusky72 

[CTHusky72]

@DaveF1006 

Thanks but…

I’m not sure that reporting just the $30,000 is in my best interest. As you said, $4,500 is a significant amount of money and, as I said in my original post, I’m not convinced that Mass Save will ever come through with the rebate. If, in fact, they don’t then I’m out $4,500 which I can never recover.

Since all of my expenses were in tax year 2022 and I did not receive a rebate in that year, I believed that I should report all of those expenses on my 2022 return. The main purpose of my original post was to find out what to do if I received a rebate in a different tax year (not necessarily in 2023 - I’ve heard of people waiting a year-and-half or more to get their rebate!).  I can’t find anywhere in the instructions for Form 5695 or anywhere else where this situation is addressed and I was hoping someone on this forum would have had experience in this or could point me to the tax code that addresses this situation. I would go directly to the IRS for help but they specifically state that they can’t help with Form 5695 and that I should seek help from a tax professional. It’s a sad state of affairs that even the IRS thinks that taxes are too complicated for a regular taxpayer to understand. 

[AmeliesUncle]

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@CTHusky72 wrote:

“If you received a subsidy from a public utility for the purchase or installation of an energy conservation product and that subsidy wasn't included in your gross income,

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Is "Mass Save" your utility company?  Or is it some other organization? 

[DaveF1006]

I should have read the post in its entirety. My advice is to claim the full cost of the geothermal pump and if you receive a rebate in 2023, you can prepare a 2022 amended return reflecting the rebate amount. In this case, you will pay back the $4500 difference in the 2022 amended return.

@CTHusky72 

{Edited 02/02/23} 6:20 PM PST} @CTHuskey72

[CTHusky72]

@AmeliesUncle 

From their website:

Mass Save® is a collaborative of Massachusetts’ electric and natural gas utilities and energy efficiency service providers including Berkshire Gas, Cape Light Compact, Eversource, Liberty, National Grid, and Unitil.

So yes, they are, in effect, my utility company.

[CTHusky72]

@DaveF1006 

Thanks Dave.

That’s the only thing that seems to make any sense except for the fact that the rebate was not received in the year in which the expenses were incurred.  It doesn’t seem likely but would it be possible to submit a Form 5695 for the year in which the rebate was received with a minus $4,500 credit or would that just confuse the IRS?

[AmeliesUncle · Accepted solution]

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@CTHusky72 wrote:

That’s the only thing that seems to make any sense except for the fact that the rebate was not received in the year in which the expenses were incurred. 

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For purposes of the credit, the credit applies for when the installation is complete, regardless of when it is paid for.  It is common to not pay for it all until a later year, but the credit is still valid when it was installed.

While it may not be clearly spelled out, it seems logical that the utility rebate would have similar effect, and would apply to when the installation was done, regardless of when the rebate was received.

Personally, I would assume the rebate will come and file the credit assuming the rebate will come.  In the unlikely event it does not come, then amend.

[CTHusky72]

@AmeliesUncle 

Thanks! That actually make sense although, as you indicated, it would be really nice if it was spelled out somewhere!

As for assuming I’ll get the rebate, I’m not going to do that just yet. When I originally submitted the application, they told me it would be 4-6 weeks until I got my check. When I was informed that the application was accepted, I was told 8-10 weeks. Sunday will be 4 months (18 weeks!) and I’ll wait until Monday to call and check the status of the rebate again and, if I don’t get a satisfactory answer, I’ll call my local news station’s consumer hot line. They’ve done 3 stories about the problems with Mass Save rebates over the last 5 years and, in each case, they were able to get the issue resolved in a short amount of time which should hopefully allow me to file my taxes before April 18th and avoid the possibility of having to file an amended return. 

[Opus 17]

@CTHusky72 

No, you can’t submit a later form with a negative credit. You submit one single form 5695 for the year in which the property was installed and placed in service, regardless of when you actually paid for it.

Your choice is to submit the form now, using the full price, and then file an amended return later to reduce the credit; or file now using the reduced price, and submit an amended return to claim a larger credit if the utility rebate is never paid; or file an extension on your 2022 tax return and wait until the rebate is acted on one way or the other.