Yes, water-to-water geothermal heat pumps can qualify for the tax credit.

The geothermal heat pump tax credit is for 30% of the cost of the product (plus installation costs) with a gradual step down in the credit value, through 2021.

 

Tax Credit: 

  • 30% for systems placed in service by 12/31/2019
  • 26% for systems placed in service after 12/31/2019 and before 01/01/2021
  • 22% for systems placed in service after 12/31/2020 and before 01/01/2022

Expires:  December 31, 2021

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Source:

The law (ARRA Section 25D(5)(B)) specifies: 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.

IRS Guidance: Notice 2009-41 Section 3. (1)(e) Qualified geothermal heat pump property expenditures are expenditures for equipment which uses the ground or ground water as a thermal energy source to heat the dwelling unit or as a thermal energy sink to cool the dwelling unit, meets the requirements of the Energy Star program which are in effect at the time that the expenditure for such equipment is actually made (even if under ยง 25D(e)(8) the expenditure is deemed made at a later time for purposes of determining the taxable year for which a taxpayer may claim the credit), and is installed on or in connection with a qualifying dwelling unit.