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Geothermal Heating: Worth the Investment?

Last updated: 12-18-2020

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Geothermal Heating: Worth the Investment?

Whether you own a home you live in yourself or own an investment property, you're no doubt aware that a well-functioning heating system is important. Plus, the more energy efficient your heating setup is, the less you'll spend on utility costs. It's for this reason that it could pay to consider geothermal heating for your home. But if you go that route, will you recoup your investment?

Geothermal heating systems use heat pumps to extract heat energy from the earth and transfer it into homes and buildings. While other heating systems rely on outside air that's subject to temperature fluctuations, geothermal systems can harness the stable temperatures found below ground surfaces to provide comfortable temperatures indoors.

The exact cost of a geothermal heating system will depend on the size and layout of the property in question. HomeAdvisor reports that homeowners pay $9,414 on average for geothermal heating, but the costs can range from $3,614 and $15,433. However, for some properties, geothermal heating will cost a lot more, especially if those properties are larger or require extra excavation. And if you own a commercial property, you can expect to spend a lot more to have geothermal heating installed.

Geothermal heating systems are said to reduce utility costs by anywhere from 50% to 80% -- you'll see different estimates all over the internet. To figure out your return on investment, you'll need to see how much you're currently spending on heating and cooling and figure out your break-even point.

Imagine you spend $5,000 annually to heat and cool your home or investment property. Let's also assume a geothermal heating system cuts your utility bills by 50%. That means you have the potential to save $2,500 a year. If you spend $15,000 for a geothermal heating system, you'll recoup your investment in six years and then start reaping savings. Over time, a geothermal heating system could easily pay for itself, but you won't get your money back right away.

One thing you should know, however, is that geothermal heating systems are eligible for a federal tax credit that could defray your costs. In 2020, you can claim 26% of your expense to install that system, but the credit will drop to 21% in 2021.

Geothermal heating can save you money over time, so whether you're thinking of it for a home you live in or a property you rent out and pay utilities on, it could make sense. Ultimately, though, you'll need to run the numbers to see when you'll recoup your outlay.

One thing to keep in mind is that because geothermal heat is considered a green energy source, it could be a selling point once you're ready to find a buyer for your home. And if you own a commercial property, that could help draw in environmentally conscious tenants. Plus, geothermal heating is something you might feel good about, so if you have the means to make that investment, it could end up being worthwhile.

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