Posted By toddm on 04 Jan 2012 08:27 AM
Docjenser, ask your bookkeeer to explain depreciation to you.

No need for that. Depreciation accounts for the loss in value over the lifetime. Total depreciation is equal to the purchase price at the end of the lifecycle, and equals the principle loan, in the above example $10,000.
But once you account for the purchase price as the cost of ownership, which will become the total depreciation after time, you cannot add again depreciation to the cost of ownership.
Well, is guess you can, since you are doing it.

Jeez, docjenser, you must be some businessman. When you buy a car on credit, your monthly payment represents amortization and interest expense. You have to pay it unless you want to meet the repo man. In addition, the car depreciates in value as time and miles go by, which is why Kelley Blue Book exists. Rest assured that no one cares about your ownership status when it comes time to sell. If you owe more on the car than it is worth, tough. The lender still wants his money back. And you still need a car. Two expenses. Both important.

Now, a well designed, professionally installed geo system will last much longer than a car, although it probably will not outlast in its entirety a 30-year mortgage. But if, as ORNL says, geo prices are high because sales are too weak in most areas to launch installers up the learning curve, what does that tell you about "well designed" and "professionally installed"?

The logic of this expense argument escapes me.  In another life, I owned an business.  One of my major expenses was a pretty expensive vehicle...around 85k.  My accountant expensed it over it's expected lifetime.  Lets say that was 10 years, so I was able to write off 8500/year.  At the end of its lifetime, when I sold it, guess what...I got to pay taxes on the sale price.  My cost of ownership was the amount expensed minus the amount I got on the sale plus the interest cost of my loan and maintenance costs.  Note that I couldn't also add the purchase price to that, as that is the amount expensed over time.  Had I done this, the IRS would surely have taken an interest.

I would argue that a geo system for residential use really is not an expense, but a capital improvement.  NYS tax code treats it as such, as there is an exemption in the property tax code for geo systems and solar systems preventing the accessors office from basing a property value increase strictly on the installation of either of these systems.  Most capital improvements do not net you the original cost of the improvement when you sell the house.  Some, such as a bathroom or deck, are better than  others.  It could be argued that a pool, in NY could decrease the value of a house.  In southern Ca., it would be a different story.  Since it's tied to real estate one might argue that it could be an investment, but you could also argue that even though real estate is an investment, a house as a principle residence is not, as the home owner has to live somewhere, and is faced with higher housing expenses when he sells his principle residence at a profit.  A business would probably expense out the cost of a geo system over it's expected lifetime.  A home owner would have no reason to do this.  A business would also probably expense out a new storage building over it's expected lifetime, while a home owner would treat it as a capital improvement.

The use of this expense vs investment argument really has no place in determining weather geo, or any other heating system, is a good idea for a residence.

The use of this expense vs investment argument really has no place in determining weather geo, or any other heating system is a good idea for a residence.

It's funny that this never bothers the industry guys while talking about the "investment" side. Only when the "expense" side comes up does it become useless, is that correct?

Posted By joe.ami on 04 Jan 2012 08:50 AM

Posted By joe.ami on 03 Jan 2012 09:46 AM

Posted By toddm on 02 Jan 2012 09:22 AM
That would be $2k savings a year, docjenser, minus extra depreciation ($10k over 20 years would be $500/yr) minus higher maintenance expenses (joe ami says plus $500/yr) minus higher interest costs ($300/yr to borrow $10k for 20 years at 5 percent interest) minus what you would have earned if you had actually invested it (10 percent a year historically or $1k/yr.)

Care to share my entire quote...... I may have said "even if geo was $500/yr to maintain.....it still saves" but I don't recall suggesting a standard well functioning and designed resi system costs $500/yr to maintain. We know you play games with words and numbers, let's not take me out of context to support your argument.

2nd inquiry

3rd inquiry Toddm.

"Based on what information, you concluded geo was for you?"

Lower monthly utility bills, and maybe trying to be a little "green".

I was building a new house, went from living in a 1100 sq' ranch approx 4700yr all utilities. To a 2000sq' ranch(main floor) with radiant in basement and drive under garage, central air, no propane tank, no oil tank, no outdoor a/c unit, 2100.00yr all electric.

A lot is talked about re: "Return On Investment" and they try to include the whole cost of geo, hello had to have a heating/cooling system anyway. I think more about how much extra did I pay for Geo, 2600.00yr savings pays back the difference pretty quick.

ChrisJ

what is interesting is the focus on the investment vs whatever arguments, when the entire reason for him not selecting it was because geo was overkill with his small, highly insulated house. Modern mini splits rival geo COP including pumps and fans running. For super insulated, smaller homes, geo just makes completely no sense. Simple 2 ton systems will still be $12k+ after tax incentives. A couple Mitsubishi Hyperheat miniplits can be had for $1600 a pop, plus install, total heating and AC system in for less then $5. With mini split performance ratings around 2.0+, that $7k+ min. up front cost in geo difference will never pay off, period. The question is "why did you choose"...he was simply saying why he did not choose. For me, I am still on the fence in a similar situation. I too should have a very tight (1. ACh or less hopefully) and super insulated (10, 20, 40, 60 approach) 3000 sqft single story home with walkout heated basement. (3k includes conditioned basement). Heat loads are showing around 18k-20k btu. I could hit that with 2 12k btu hyperheat Minis (one on each level), but would also require backup heat for when temps drop below 0 (Hyperheats are rated down to -14, but lose 30% of their output and COP drop to just above 1). Electric baseboard heaters are what I am considering, but am not sure. Still need to add an HRV and small ducting to that however. I am sitting around $9k for the hyperheats, a few baseboards, HRV and ducting installed. This is compared to a $12k-14k geo system that would provide full heat and ac without backup, desuper, etc. This also includes HRV. Not real sure which way to go yet. They do have DIY geo systems that can be had for $8k plus ducting.

Posted By ICFHybrid on 05 Jan 2012 09:20 AM

The use of this expense vs investment argument really has no place in determining weather geo, or any other heating system is a good idea for a residence.

It's funny that this never bothers the industry guys while talking about the "investment" side. Only when the "expense" side comes up does it become useless, is that correct?

No, neither is. 

Decks, bathrooms, new kitchens, pools etc are also capital improvements.  All add to the creature comforts and may add to the possible resale value of a home.  Most of these things are financed also.

Energy related capital improvements (which include geo) are the only things I can think of that do the above, and also save the owner money while he or she owns and lives in the home.  It's up to the owner to do a careful cost analysis and decide what these are based on what he or she wants.  Mini splits, solar, insulation, etc as well as geo could be a choice.

 As far as "industry guys " go, no one ever gave me the "investment" line.  I was given careful cost analyses with real numbers that made sense.  I've heard lawn tractor salesmen use the "investment" line before...that's nothing new in the sales business, whatever the product.

Sesmith, the IRS allows you to depreciate a vehicle because there comes a point when you have to replace it (which is to say that you "consume" one tenth of the vehicle's useful life per year.) That you depreciated it too quickly would be a pyrrhic victory, one guesses, if you were obliged to lay out another $85k in the same year. Geo mechanicals are also consumed, unlike ceramic tile or hardwood floors. While few people actually set aside the money each year, you don't want to ignore depreciation in a comparison of one asset vs another, because a tenth of $85k is quite different from a tenth of $45k.

That said, feel free to consider geo as a capital improvement; just don't forget about depreciation. In the end, depreciation is the difference between what you paid and what an independent third party is willing to pay you. If your local real estate market is dominated by foreclosures and short sales, that could be nothing.

I have nothing against geo. If I was building 3k sf or up, it would be on the top of my list. I have a big problem with "investments" that depreciate. I'd like to think that this site is about more than sales.

Joe Ami: why don't you tell us what you wrote. To tell us what you"may" have written, methinks, puts the weasel on the wrong foot.

Posted By toddm on 05 Jan 2012 05:40 PM
Sesmith, the IRS allows you to depreciate a vehicle because there comes a point when you have to replace it (which is to say that you "consume" one tenth of the vehicle's useful life per year.) That you depreciated it too quickly would be a pyrrhic victory, one guesses, if you were obliged to lay out another $85k in the same year. Geo mechanicals are also consumed, unlike ceramic tile or hardwood floors. While few people actually set aside the money each year, you don't want to ignore depreciation in a comparison of one asset vs another, because a tenth of $85k is quite different from a tenth of $45k.

That said, feel free to consider geo as a capital improvement; just don't forget about depreciation. In the end, depreciation is the difference between what you paid and what an independent third party is willing to pay you. If your local real estate market is dominated by foreclosures and short sales, that could be nothing.

I have nothing against geo. If I was building 3k sf or up, it would be on the top of my list. I have a big problem with "investments" that depreciate. I'd like to think that this site is about more than sales.

Joe Ami: why don't you tell us what you wrote. To tell us what you"may" have written, methinks, puts the weasel on the wrong foot.

The IRS lets you depreciate only if you are a business so depreciation is kind of a mute point in a residential, non-business setting, though expected life expectancy is important to know.   All capital assets including buildings depreciate in value and have a life expectancy.  A geo heating system, or any heating system is no different than the building it is in...it has a life expectancy, which, BTW is longer than for most heating systems. 

See the definition from the IRS website:

"Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.

Most types of tangible property (except, land), such as buildings, machinery, vehicles, furniture, and equipment are depreciable. Likewise, certain intangible property, such as patents, copyrights, and computer software is depreciable."

The interesting thing to note here is that real estate (at least in the form of buildings) is not an "investment" either...something a lot of people learned the hard way the last couple of years.  Buildings have to be constantly repaired and updated to have value left, and an old farmhouse, even if updated, will rarely have the value of a new building.

Posted By toddm on 05 Jan 2012 05:40 PM
Sesmith, the IRS allows you to depreciate a vehicle because there comes a point when you have to replace it (which is to say that you "consume" one tenth of the vehicle's useful life per year.) That you depreciated it too quickly would be a pyrrhic victory, one guesses, if you were obliged to lay out another $85k in the same year. Geo mechanicals are also consumed, unlike ceramic tile or hardwood floors. While few people actually set aside the money each year, you don't want to ignore depreciation in a comparison of one asset vs another, because a tenth of $85k is quite different from a tenth of $45k.

That said, feel free to consider geo as a capital improvement; just don't forget about depreciation. In the end, depreciation is the difference between what you paid and what an independent third party is willing to pay you. If your local real estate market is dominated by foreclosures and short sales, that could be nothing.

I have nothing against geo. If I was building 3k sf or up, it would be on the top of my list. I have a big problem with "investments" that depreciate. I'd like to think that this site is about more than sales.

Joe Ami: why don't you tell us what you wrote. To tell us what you"may" have written, methinks, puts the weasel on the wrong foot.

sorry...internet issues caused duplicate.  Lord knows, it was long enough already.  Someone, please return this thread back to it's original subject.

Posted By toddm on 05 Jan 2012 05:40 PM
Sesmith, the IRS allows you to depreciate a vehicle because there comes a point when you have to replace it (which is to say that you "consume" one tenth of the vehicle's useful life per year.)
In the end, depreciation is the difference between what you paid and what an independent third party is willing to pay you.

OK, $10,000 added upfront costs over a conventional system, 20 years (conservative) life expectancy, assuming that the system is worth nothing after 20 years.
I take out a loan, pay it back within 20 years, $10,000 plus interest are my cost of ownership.
As a business, depreciation is the difference between what you paid and what an independent third party is willing to pay you, as you are stating above. Lets assume you again paid 10K, and you get nothing for it at the end. $10,000 depreciation cost, yes, an expense. However, the IRS now will not allow you to claim the payback against the principle of the loan as an expense, because it is none. It is a cash flow issue. It is neutral in the books. And don't forget about the positive cash flow because the savings in operating expenses (yes, those are expenses). Savings are much higher than the ownership expenses = great investment!
Yes, with small efficient houses which have small energy needs, geo usually does not make economical sense. This appears the case for you. But you should stop misleading people here just because you decided not to get one.

I've told many people that the purchase of our geothermal system was the best investment we ever made.  I suppose that after reading this thread I'll start telling people that it was the best non-depreciable expense that we ever chose to incur.  Yeah right.

The IRS has nothing to do with a life cycle cost analysis. The sad fact is that you pony up more money when your geo system craps out or you freeze. The sad fact is that a resale of your home in this climate won't get you anything close to your "investment." The sad fact is that ornl has done some studies on life cycle costs of geo that are quite positive: http://www.ornl.gov/sci/ees/etsd/btric/ground-source.shtml But rather than treat you like an adult, docjenser wants to sell you a bill of goods

Posted By toddm on 05 Jan 2012 08:31 PM
The IRS has nothing to do with a life cycle cost analysis. The sad fact is that you pony up more money when your geo system craps out or you freeze. The sad fact is that a resale of your home in this climate won't get you anything close to your "investment." The sad fact is that ornl has done some studies on life cycle costs of geo that are quite positive: http://www.ornl.gov/sci/ees/etsd/btric/ground-source.shtml But rather than treat you like an adult, docjenser wants to sell you a bill of goods

Given the comments here, I don't seem to be the only one not being able to follow your very own logic. The IRS was part of the argument about depreciation. Sure, there might be repairs down the road, but more than conventional systems? Sure, you might sell your home, but given the short payback time due to the operational savings of geo you might have recouped your investment already, making the discussion wether geo adds to home values or not less relevant. Why is it sad that people evaluated life cycle costs and found that geo systems perform positive?
There is a pattern here. You make misleading statements, then people here (having much more geo experience then you) challenge them and correct them. Then you don't respond but make more misleading new statements.
This should be a place, where interested in geo people get help from experts. It should be a place we all gain knowledge through the exchange of information. Where this should also be a place for constructive criticism, people who lack knowledge and experience should not mislead others here.

Posted By toddm on 05 Jan 2012 08:31 PM
The sad fact is that you pony up more money when your geo system craps out or you freeze.

The really sad fact is that when your fossil fuel system is working perfectly,
you pony up more money -- year in and year out -- AND you freeze.

...there's no fuel like an old fuel,

Looby


"An empty head is not really empty, it is stuffed with rubbish.
Hence the difficulty of forcing anything into an empty head."
- Eric Hoffer

...people who lack knowledge and experience should not mislead others here.

Would it be fair to say that people, particularly if they have knowledge and experience, should not mislead others in the pursuit of financial gain?

[quote]It should be a place we all gain knowledge through the exchange of information.[/quote]

I'm learning a lot by reading this thread.

Todd, You used me to support your argument. Show us the quote or admit you lied. The only reason I jumped in this snarky thread was because you attached me to your B.S...............


Sesmith- my customers generally buy geo because it makes economic sense to them. Whether it is an expense or an investment, cheap electricity and expensive fuel oil or LP in my area means people often save as much as 15 thousand in 5 years off their old fossil fuel bills. That makes the purchase make sense to them........

I also sell furnaces, boilers etc. and am not married to geo, I will install whatever they choose.

Posted By joe.ami on 06 Jan 2012 09:30 AM
.....
Sesmith- my customers generally buy geo because it makes economic sense to them. Whether it is an expense or an investment, cheap electricity and expensive fuel oil or LP in my area means people often save as much as 15 thousand in 5 years off their old fossil fuel bills. That makes the purchase make sense to them........

Exactly why I did.  No one needed to "sell" us.  Kinda hard to ignore cold, hard numbers.

What is your agenda?

You also sold geo to your self?