Federal Investment Tax Credit

The Federal Investment Tax Credit (ITC) for ground-source heat pump systems has transitioned from the Section 48 framework to the ‘technology-neutral’ Section 48E Clean Electricity Investment Credit. Qualifying projects receive a 6% base credit, which increases to 30% either by meeting prevailing wage and apprenticeship (PWA) requirements or by remaining under the 1 MW (~280-Tons) threshold. Projects may also qualify for stackable 10% bonuses for meeting domestic content requirements and for being located in designated energy communities. Together, these incentives can drive total credits to up to 50% of eligible project costs, significantly improving project economics while supporting U.S. manufacturing and workforce development.

  • The base credit is 6%. Projects can increase this to 30% either by remaining below the 1 MW (~284 Ton) threshold or by complying with prevailing wage and apprenticeship (PWA) standards. For projects exceeding 1 MW, PWA compliance generally requires contractors and subcontractors to pay prevailing wages (as defined by the U.S. Department of Labor) and ensure a specified percentage of total labor hours are performed by qualified apprentices during construction.

  • Energy Communities are designated areas that have historically depended on fossil fuel industries or have experienced economic impacts from energy sector decline. Projects located in these areas are eligible for an additional 10% bonus tax credit under Section 48E, increasing overall project economics. This bonus is 2% if the project is over 1 MW and PWA requirements are not met. Qualification is based on specific criteria such as employment, tax revenue tied to fossil fuels, or the presence of brownfield sites.

    CLICK HERE to see if your project is in a DOE designated Energy Community.

  • The domestic content bonus provides an additional 10% tax credit if a ground-source heat pump system meets U.S. sourcing requirements defined by the IRS. This bonus is 2% if the project is over 1 MW and PWA requirements are not met. All steel and iron used in the project must be produced in the United States, and manufactured products must meet a minimum domestic cost threshold. For projects beginning after 1/1/2026 the minimum domestic cost threshold must be 55%. This is calculated based on the cost of components and subcomponents, not just final assembly location. If these requirements are not met, projects can still qualify for the base credit, but will forgo the domestic content bonus.

  • Prior to the passing of the OBBBA, ground-source heat pump systems qualified for five-year accelerated depreciation. Now, Section 70509 of the OBBBA eliminated the five-year accelerated depreciation and makes 100% bonus expensing permanent for eligible property placed in service beginning the first taxable year after January 19, 2025.