Geothermal Tax Credit 2026: What’s Left After 25D Ended (and What Still Applies)
Short answer: the 30% federal residential tax credit for geothermal heat pumps (Section 25D) ended for expenditures made after December 31, 2025. If you’re a homeowner installing a system you own in 2026, there is no federal income tax credit for it. But geothermal is not without incentives: the Section 48 investment tax credit still applies to commercial, rental and third-party-owned systems through 2034, the HEEHRA and HOMES rebate programs are rolling out state by state, and many states and utilities run their own geothermal programs.
This guide explains what changed, who can still claim a federal credit, which rebates to check, and how to recalculate your payback without 25D.
This article is general information, not tax advice. Tax rules change and eligibility depends on your situation; confirm with a tax professional before making decisions.
Federal geothermal incentives in 2026 at a glance
| Incentive | Who it’s for | Status in 2026 |
|---|---|---|
| Section 25D – Residential Clean Energy Credit | Homeowners who own the system | Ended for expenditures made after Dec 31, 2025 |
| Section 25C – Energy Efficient Home Improvement Credit | Homeowners (air-source heat pumps, efficiency upgrades) | Ended after Dec 31, 2025 |
| Section 45L – New Energy Efficient Home Credit | Home builders | Ends for homes acquired after June 30, 2026 |
| Section 48 – Investment Tax Credit (geothermal heat pump property) | Businesses, rental owners, third-party-owned systems | Available: up to 30% through 2032, then 26% (2033) and 22% (2034) |
| HEEHRA – Home Electrification rebates | Low- and moderate-income households | Point-of-sale rebates, up to $8,000 for a heat pump, where your state has launched |
| HOMES – Whole-home efficiency rebates | Households that cut modeled or measured energy use | Performance-based rebates, where your state has launched |
What happened to the 30% geothermal tax credit (Section 25D)?
Under the Inflation Reduction Act, homeowners could claim 30% of the installed cost of a geothermal heat pump, with no dollar cap, through Section 25D. The One Big Beautiful Bill Act, signed in July 2025, ended that credit early: it no longer applies to expenditures made after December 31, 2025.
Installed in 2025? You may still claim it
If your system was installed in 2025, the credit is claimed on your 2025 tax return using IRS Form 5695. If the credit was larger than your tax liability, the unused portion can carry forward to future years. Keep your invoices, the manufacturer certification and proof of the installation date.
Installing in 2026 as a homeowner?
There is no federal income tax credit for a geothermal heat pump you buy and own for your primary or secondary home. That changes the math, but it doesn’t change the fundamentals: geothermal still has the lowest operating cost of any heating and cooling system in most climates. The question becomes how long it takes to pay back without the 30% — which is where state programs and smart system design matter more than ever.
Section 48: the federal credit that still applies
Geothermal heat pump property remains eligible for the business investment tax credit under Section 48. It is not a homeowner credit, but it can apply in more situations than most people expect:
- Rental properties and multifamily buildings owned by a business or landlord. See our guide to geothermal heat pumps for multifamily buildings.
- Commercial buildings such as offices, schools, hotels and retail.
- Third-party-owned residential systems, where a company owns the geothermal system and leases it to the homeowner. The owner claims the credit and can pass part of the value on through lower monthly payments.
- Builders and developers who own the system in projects they operate.
How much is the Section 48 credit for geothermal?
The base credit is 6% of eligible costs. It rises to 30% if the project is under 1 megawatt or meets prevailing wage and apprenticeship requirements — which covers practically every residential-scale and small commercial geothermal heat pump installation. Additional bonus credits of up to 10 percentage points each may apply for domestic content or for projects located in an energy community.
| Construction start | Credit (with 1 MW / wage & apprenticeship rule met) |
|---|---|
| 2026 – 2032 | Up to 30% |
| 2033 | Up to 26% |
| 2034 | Up to 22% |
| 2035 and later | No credit |
Rules on eligible costs, ownership and timing are detailed, so the project owner should work with a tax advisor familiar with energy credits.
Rebates: HEEHRA and HOMES
The Inflation Reduction Act also created two rebate programs funded through the states. Unlike tax credits, these are rebates — often applied at the point of sale — and they were not eliminated along with 25D.
- HEEHRA (Home Electrification and Appliance Rebates): up to $8,000 for a heat pump for space heating and cooling. Households under 80% of area median income can receive the full amount; households between 80% and 150% of AMI can receive up to half.
- HOMES (Home Efficiency Rebates): rebates based on the energy savings of a whole-home upgrade, measured or modeled. Replacing a fossil fuel system with geothermal can produce large modeled savings.
Availability depends on your state: each state energy office runs its own program, with its own launch date, contractor list and rules. Check your state energy office before you sign a contract, because some programs require pre-approval.
State and utility geothermal incentives
For most homeowners in 2026, the biggest incentives now come from state programs and utilities. Several states in the Northeast — including New York (NYS Clean Heat) and Massachusetts (Mass Save) — run active ground-source heat pump programs, and many utilities offer rebates, special electric rates or low-interest financing for geothermal.
Where to look:
- Your electric utility’s rebate or efficiency page (search “ground source heat pump rebate” plus your utility name).
- Your state energy office for HEEHRA/HOMES status and state-funded programs.
- DSIRE (dsireusa.org), the national database of state incentives for renewables and efficiency.
- Your installer: experienced geothermal contractors know which programs are open, the paperwork, and the pre-approval timing.
Some states also offer property tax or sales tax exemptions for renewable energy equipment. Rules vary widely, so confirm locally.
Does geothermal still make sense without the federal credit?
Often, yes — but it depends more on the project than it did in 2025. Geothermal makes the strongest case when:
- You’re building new. Loop installation is easier and cheaper to coordinate during construction. See geothermal for new construction.
- You’re replacing oil, propane or electric resistance heat, where operating savings are highest.
- One system can do several jobs — heating, cooling and domestic hot water (and in some cases pool heating) — instead of buying separate equipment.
- You plan to stay in the home long enough to benefit from the long life of the ground loop.
- A state or utility program offsets a meaningful part of the cost.
For a realistic budget, read our breakdown of geothermal installation costs for a house, and compare options in geothermal vs. air-source heat pump. For a balanced view of the trade-offs, see is a geothermal heat pump worth it?
How to lower the cost of geothermal in 2026
- Size the system correctly. An oversized heat pump means more loop, more drilling and a higher bill. A room-by-room load calculation (Manual J) is the starting point.
- Choose variable-speed equipment. Ecoforest ecoGEO+ geothermal heat pumps modulate their output (15–100%), so one unit covers a wide load range and avoids short cycling, and they come with the circulating pumps, expansion vessels and controls built in.
- Combine functions. Producing domestic hot water (up to 149 °F, or 167 °F with HTR heat recovery) from the same heat pump avoids the cost of a separate water heater.
- Stack incentives. A state rebate, a utility rebate and, where eligible, HEEHRA can sometimes be combined — check each program’s rules.
- Consider third-party ownership if you’d rather pay monthly than upfront; the owner may be able to use the Section 48 credit.
Frequently asked questions
Is there a federal tax credit for geothermal in 2026?
Not for homeowners who own their system: Section 25D ended for expenditures made after December 31, 2025. Businesses, rental owners and third-party owners can still use the Section 48 investment tax credit, worth up to 30% through 2032.
Can I still claim the geothermal tax credit for a system installed in 2025?
Yes. A system installed in 2025 is claimed on your 2025 return with Form 5695, and any unused credit can carry forward to later years.
Does the Section 48 credit apply to my house?
Only if the system is owned by a business — for example, a rental property, or a system owned by a third party and leased to you. It does not apply to a system you buy for your own home.
Do geothermal heat pumps qualify for HEEHRA rebates?
HEEHRA covers heat pumps for space heating and cooling, up to $8,000 depending on household income. Whether and how a geothermal system qualifies depends on your state’s program, so check with your state energy office.
Will the residential geothermal tax credit come back?
There is no way to know. Plan your project on today’s rules and treat any future change as a bonus.
Next step
Without the 30% federal credit, a well-designed system matters more than ever. Learn how geothermal works in our complete guide to geothermal heat pumps, or contact Ecoforest to find an installer and size an ecoGEO+ system for your home or project.