The Emergency Economic Stabilization Act of 2008, H.R. 1424, which became law on October 3^rd, contains long-term tax incentives to encourage the use of renewable energy technologies, including geothermal heat pumps, in homes and businesses.  The bill also extends tax incentives for homes and commercial buildings that support the installation of highly-efficient heating, cooling, and water heating systems, such as geothermal heat pumps until the year 2016. 

The new law offers a one time tax credit of 30% of the total investment up to a maximum credit of $2,000 for all residential ground loop or ground water geothermal heat pump installations. A credit of 10% of the total investment is also available without a maximum credit limit for a commercial installation.

To qualify, the systems must meet or exceed EnergyStar requirements and be installed after December 31, 2007. Owners can file for the credit by completing the Renewable Energy Credits subsection on their tax return forms for 2008. For taxpayers subject to the Alternative Minimum Tax, the credit can be claim on their taxes for the following year.

The new tax incentives for geothermal heat pumps are the culmination of an “all-out” federal legislative affairs effort unilaterally initiated by LSB Industries (New York Stock Exchange Symbol: LXU) subsidiary, ClimateMaster, in April, 2007.  Dan Ellis, president, with the support of a coalition of top-tier legislative consultants, embarked on a mission to educate Congress on the benefits of geothermal heat pumps and the role they could play in meeting our nation’s energy-efficiency and climate change goals.  Ultimately, there were direct meetings with 34 members of Congress, including Majority Leader Reid, and with hundreds of staff members and other government and administration employees.  This effort received vital support from:

• Alliance to Save Energy
• American Council for an Energy Efficient Economy
• International Ground Source Heat Pump Association
• Geothermal Heat Pump Consortium
• Geothermal National & International Initiative Inc.
• National Ground Water Association
• Geothermal Energy Association
• National Rural Electric Cooperative Association

The specific provisions of the bill that directly or indirectly support geothermal heat pumps are:

Extension of Credit for Energy-Efficiency Improvements to New Homes.  Under current law, contractors receive a credit for the construction of energy-efficient new homes that achieve a 30% or 50% reduction in heating and cooling energy consumption relative to a comparable dwelling.  The credit equals $1,000 for homes meeting a 30% efficiency standard, $2,000 for homes meeting a 50% standard.  The bill extends the new energy efficient home tax credit through 2009.

Long-term Extension and Modification of the Residential Energy-Efficient

Property Credit.  The bill extends the credit for residential solar property and removes the credit cap (currently $2,000) for solar electric investments.  The bill adds residential small wind investment, capped at $4,000, and geothermal heat pumps, capped at $2,000, as qualifying property.  The bill extends these credits through 2016 and allows them to be used to offset the AMT. 

Long-term Extension of Energy Credit.  The bill extends the 30% investment tax credit for solar energy property and qualified fuel cell property, as well as the 10% investment tax credit for microturbines.  The bill increases the $500 per half kilowatt of capacity cap for qualified fuel cells to $1,500 per half kilowatt of capacity, and adds small commercial wind as a category of qualified investment.  The bill also provides a new 10% investment tax credit for combined heat and power systems and geothermal heat pumps.  The bill extends these credits through 2016 and allows them to be used to offset the alternative minimum tax (AMT).  By including geothermal heat pumps within the definition of “energy property” in the Energy Credit language, geothermal heat pump systems placed in service after October 3, 2008 will now also be subject to a 5-year depreciation period. 

Extension of Energy-Efficient Buildings Deduction.  Current law allows taxpayers to deduct the cost of energy-efficient property installed in commercial buildings.  The amount deductible is up to $1.80 per square foot of building floor area for buildings achieving a 50% energy savings target.  The energy savings must be accomplished through energy and power cost reductions for the building’s heating, cooling, ventilation, hot water, and interior lighting systems.  This bill extends the energy efficient commercial buildings deduction for five years, through December 31, 2013.