Doug D announced latest IRS ruling

At Ball State University's Geo Con. GEO boss Doug Dougherty announced latest IRS decision that duct work is not a geo property covered by the 30% tax credit.

 

That wording was at Energy stars website. http://energystar.supportportal.com...?deptID=23018&task=knowledge&questionID=23325
4 yrs after the fact, my installers invoice didn't break things down.
Chris

 

I know all were suspicious but apparently this is a recent ruling by the IRS. Apparently they are trying to make up for lost time after their 16 day vacation.

 

My fingers are crossed!

 

Well until they specifically include it in a IRS publication I will be putting it on my tax return. Would not be the first time I was audited probably not the last.

 

that's my point, according to Doug, they issued a written statement. perhaps mods could direct us?

 

Relevant notice is Notice 2013-30:

.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.
​

Emphasis added.

 

I posted another comment but it's awaiting moderator approval I'm guessing since it was my first and it has a link. IRS Notice 2013-70 is the relevant notice for the new guideline. In it, Question 31 explicitly states that distribution system as well as auxiliary/backup heat are NOT included in the credit. I'm no tax professional but my interpretation is that distribution system would include not only ductwork, but also hydronic systems beyond the unit. Storage tanks probably become a gray area.

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.
...
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.
​

Note: my previous message waiting for approval I said it was Notice 2013-30. The 30 was a typo and should be 70. The link is however correct.

 

Here it is amongst other things. Page 11 Q-31.
http://www.irs.gov/pub/irs-drop/n-13-70.pdf

 

Definitions:
Geothermal Heat Pump
A geothermal heat pump uses the thermal energy of the ground or groundwater to provide residential space conditioning and/or domestic water heating. A geothermal heat pump model normally consists of one or more factory-made assemblies that include indoor conditioning and/or domestic water heat exchanger(s), compressors, and a ground-side heat exchanger. A geothermal heat pump model may provide space heating, space cooling, domestic water heating, or a combination of these functions and may also include the functions of liquid circulation, thermal storage, air circulation, air cleaning, dehumidifying or humidifying. A geothermal heat pump system generally consists of one or more geothermal heat pump models, the ground heat exchanger(s), the air and/or hydronic space conditioning distribution system(s), temperature controls, and thermal storage tanks.

Section 25 refers to the energy star guidelines for definition and requirements to be met. Energy star defines the air and/or hydronic distribution system to be part of the geothermal system.

It is also a weird ruling since supplement heat elements make the system smaller, cheaper and more efficient. Especially they lower the installation costs, thus the amount of credits to be claimed.

 

"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."
Yes it is weird. How is the system complete without a delivery system. Isn't that then one of the properties?

 

What happens if you only charge $1 for the ductwork and then make up the difference in the cost for the ground heat exchanger?? Just a thought...

 

Fraud... Like anything else with taxes you may get away with it you may not.

 

Good point.

 

I have heard of people getting the rebate on sod, mulch, and landscaping.....they desired to fight the battle with ducting??????

 

No, I read it as they they aren't fighting the battle with ducting and auxiliary heating. They are just explicitly stating that they are excluded because they are not explicitly included in the wording of the legislation. Piping and wiring is specifically mentioned, so it is included. Ductwork and emergency heat have always not been included as referred to on the EnergyStar website.

I would imagine far more people have tried to slip in aux heating and/or ductwork under the credit than landscape work and thus why it was specifically addressed. I understand where people think that ducting should be included. But the ducting doesn't add to a units performance, ultimately it can only detract from it. Similar for auxiliary heat...it's not adding efficiency, it's reducing it when it need is called for. The 30% tax credit is specifically for reducing overall energy use by utilizing renewable energy. To that extent, the ductwork or heat strips doesn't do that, so it gets excluded. And I think it's abuse of the credit that ultimately could harm it, reducing what's eligible or not renewing it all together after 2016.

 

I feel that heat strips should be included. They are installed within the unit.

Now someone installing a duel fuel system or seperate furnace for back-up, that's a different story.

Chris

 

Most of the time, the electric strip heat results in a cheaper system to install (thus lesser claimed tax credits), and lesser energy consumption and operating costs. I understand the ductwork, because it is the same for a conventional system, although geo in general needs more flow in heating mode. However, since it also is used for cooling, and there the ductwork is similar, I follow the rationale for the exclusion.
I have trouble following the rationale for strip heat, but I understand the difficulty of making the distinction between strip and a full blow conventional system "as backup".

 

I agree with the strip heat not being deductible..
Electric heat is by no mean efficient. It's "back up heat for emergency use", not meant to be used as a means of heating.

 

I agree with Doc that we employ auxiliary heat as just that, not emergency use or back up only. I've blogged extensively on the fact that besides lower first cost, geos not designed for 100% of load often use less energy than those that are. Less energy consumption is the primary goal.
Those that cost slightly more to operate (less than 100$/yr difference) also save $2,500 first cost dollars (saving $750 in tax credits for the gummint).