is fully replacing a failed geothermal pump considered an improvement eligible for tax credit?

[Eric-td]

One of my 3 geothermal heat pump/condenser units has failed. Original installation was in  2011, in my primary residence. I'm evaluating whether to fully replace it with a new, 2024 model, or spend about half that cost to repair it. My current situation is I have two heat pumps operable. If I either replace the third unit, or repair it, is either ( or both?)  considered an improvement from my current situation, whereby I choose again to go geothermal? And therefore make me eligible for the 30% tax credit? 

Thanks

[AmeliesUncle]

I can't think of any reason why a new one wouldn't qualify for the credit.

No, a repair would not qualify for the credit.

[Eric-td]

actually I have found that the key to getting the tax credit is to replace the entire geothermal operating system, meaning condenser unit + air handler. 

[Opus 17]

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@Eric-td wrote:

actually I have found that the key to getting the tax credit is to replace the entire geothermal operating system, meaning condenser unit + air handler. 

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There is no such limitation in the actual law.  See section 25D, paragraph (d)(5) for the definition of qualifying heat pump property.

https://www.law.cornell.edu/uscode/text/26/25D

I agree a repair does not qualify, but there is nothing in the law that says that replacement of part of a system doesn't count.

There could be a regulation or FAQ that says you can only get credit for an entire system, but when the regulations or instructions conflict with the Law, the law is always primary.  

If you found something on the IRS web site that it must be an entire system, I would like the link to see for myself.  If you found advice on a non-IRS web site, I would not consider it to be authoritative.  Many energy savings sites get the law wrong. 

[Eric-td]

Thank you for this. It was my HVAC provider who gave me the advice about a full replacement, and a local CPA I know confirmed it to the best of her knowledge. BUT, I'm going back to both of them with your perspective. Thanks. Eric (CU '66,'67)

[Opus 17]

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@Eric-td wrote:

Thank you for this. It was my HVAC provider who gave me the advice about a full replacement, and a local CPA I know confirmed it to the best of her knowledge. BUT, I'm going back to both of them with your perspective. Thanks. Eric (CU '66,'67)

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Obviously the HVAC provider wants to sell you a complete system.  I wouldn't take tax advice from the HVAC provider any more than I would let him fill a cavity in my tooth.

In discussing with your CPA, it may be worth noting that Congress was capable of being specific when they wanted to be; for example, only a "central" air conditioner is eligible, so mini-splits don't count.  But there is no similar limitation for heat pumps, so a heat pump mini-split is eligible.  Since Congress did not specifically say that geothermal heat pump property only constituted complete systems, I think it is safe to conclude that partial systems are allowed.

https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=26-USC-19...

[Eric-td]

Got it. But just to be really careful. I'm replacing an 11 year old geothermal heat pump with a new one. It's not a new "install." I don't see anything in the language you have provided which would differentiate that, and technically I would be "installing a geothermal heat pump." Thanks for hanging in here with me.  Eric

[Eric-td]

Looking at this from the perspective of the air-handler that attaches to the heat pump, can I assume that the term heat-pump property can include an air handler?  In other words, the following wouldn't exclude the air handler from being eligible for the energy credit?

qualified geothermal heat pump property expenditure

(5) Qualified geothermal heat pump property expenditure (A) In general The term “qualified geothermal heat pump property expenditure” means an expenditure for qualified geothermal heat pump property installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer. (B) Qualified geothermal heat pump property The term “qualified geothermal heat pump property” means any equipment which— (i) uses the ground or ground water as a thermal energy source to heat the dwelling unit referred to in subparagraph (A) or as a thermal energy sink to cool such dwelling unit, and (ii) meets the requirements of the Energy Star program which are in effect at the time that the expenditure for such equipment is made.