The federal Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025, and the IRS treats an expenditure as made when installation is completed (IRS FS-2025-05). Federal tax credits for this work have ended, but state, local and utility rebates may still apply; check what is available at your address with the DuloCore rebate calculator. And under IRS carryforward provisions, that unused credit doesn't vanish. But the rules for carrying forward geothermal credits differ from standard deductions, and missing the filing requirements costs homeowners an average of $3,400 in forfeited benefits.
What Percentage of Geothermal System Costs Can You Claim as a Tax Credit?
The federal Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025, and the IRS treats an expenditure as made when installation is completed (IRS FS-2025-05). The credit covers equipment, labor, and installation costs without a maximum dollar cap. Homeowners who spent $25,000 on a geothermal system in 2026 claim a $7,500 credit against their federal tax liability for that year. (Note: Federal tax credit percentages and availability are subject to change; the 30% Residential Clean Energy Credit under Section 25D expired December 31, 2025. Verify current incentives at energy.gov.)
And this 30% rate remains fixed through 2032. So installations completed in 2026 through 2032 qualify for the same percentage. The credit then decreases to 26% in 2033 and 22% in 2034 before expiring.
But the credit only applies to tax liability—not refunds. Or if a homeowner owes $4,000 in taxes and claims a $7,500 credit, the $3,500 excess carries forward to the next tax year. So planning installation timing around expected tax liability maximizes the credit's value. Check our rebate calculator to estimate your specific credit amount.
How Much Can You Claim? Understanding the Annual and Equipment Caps
The IRA geothermal tax credit has no annual dollar cap and no equipment cost limit. And homeowners who install multiple geothermal systems in a single year claim 30% of the combined costs. So a $40,000 system generates a $12,000 credit without reduction.
But carryforward credits accumulate without expiration. Or a homeowner with $10,000 in unused credits from 2025 and $8,000 from 2026 carries forward $18,000 total. The IRS applies carryforward credits to future tax years until fully used.
And carryforward amounts don't decrease over time. So $5,000 in unused 2026 credits carries the same $5,000 value in 2030. This differs from state rebates, which often expire annually. Federal geothermal credits persist indefinitely through the carryforward mechanism.
Which Geothermal Equipment Qualifies for the Tax Credit?
Qualifying geothermal systems must meet ENERGY STAR certification and extract or dissipate heat using the earth's constant underground temperature. The credit covers ground-source heat pumps, direct exchange systems, and closed-loop or open-loop configurations. And equipment must heat or cool a primary or secondary U.S. residence.
Eligible costs include drilling, trenching, heat pump units, thermostats, installation labor, and electrical upgrades required for system operation. So a $25,000 installation with $8,000 in drilling costs and $17,000 in equipment qualifies for a $7,500 credit.
But water heaters heated by geothermal systems don't qualify separately—only the primary heating and cooling equipment. Or adding a $3,000 geothermal water heater to an existing system doesn't generate additional credits. The credit applies once per complete system installation. Learn more about qualifying equipment in our geothermal tax credit guide.
Are There Income Limits That Affect Your Geothermal Tax Credit Eligibility?
The IRA geothermal tax credit has no income limits. And homeowners at any income level claim the full 30% credit on qualifying installations. So households earning $50,000 and $500,000 receive identical percentage benefits.
But high-income households with larger tax liabilities use credits faster. Or a household owing $15,000 in annual taxes absorbs a $12,000 geothermal credit in one year. Lower-income households often carry forward larger portions.
And passive income rules don't restrict geothermal credits. So rental property owners, self-employed individuals, and W-2 employees all qualify equally. This differs from other energy tax credits that phase out above certain income thresholds.
What Form Do You File to Claim the Geothermal Carryforward Credit?
Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05). The form calculates current-year credits, subtracts current tax liability, and determines the carryforward amount automatically.
Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05).
Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05). Or skipping a year forfeits the carryforward. The IRS doesn't automatically track unused credits across multiple years.
How Do Geothermal Credits Stack With Other Energy Tax Credits?
Geothermal credits stack with other IRA credits including battery storage, electric vehicle chargers, and energy-efficient windows. Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05).
So homeowners who install a $25,000 geothermal system and a $10,000 battery storage unit in 2026 claim $7,500 plus $3,000 for $10,500 total. But credits can't exceed total tax liability in a single year—excess amounts carry forward together.
And geothermal credits don't stack with state rebates for the same equipment. Or California's TECH Clean California rebate reduces the federal credit basis. A homeowner who receives a $3,000 state rebate on a $25,000 system claims 30% of the net $22,000 cost—not the gross amount. See our heat pump rebates guide for state program details.
| Program | Amount | Income Limit | Carryforward |
|---|---|---|---|
| IRA Geothermal Credit | Ended Dec 31, 2025 | — | — |
| TECH Clean California | Up to $3,000 | Yes (varies) | No |
| Federal Battery Storage Credit | Ended Dec 31, 2025 | — | — |
What's the Step-by-Step Process to Claim Your Geothermal Tax Credit?
Homeowners claiming geothermal credits follow a five-step process. First, verify equipment meets ENERGY STAR Most Efficient certification through the manufacturer's product page. Second, save all receipts including equipment costs, installation labor, and site preparation.
Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05). So a system installed in November 2026 generates a credit claimed on the April 2027 tax return. Fourth, subtract the credit from total tax liability to calculate carryforward amounts.
Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05).
When Did the Geothermal Tax Credit Start and When Does It Expire?
The federal Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025, and the IRS treats an expenditure as made when installation is completed (IRS FS-2025-05). The credit decreases to 26% in 2033 and 22% in 2034 before expiring December 31, 2034.
The federal Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025, and the IRS treats an expenditure as made when installation is completed (IRS FS-2025-05). So homeowners who installed systems in 2022 claimed a 26% credit—lower than the current 30% rate.
And carryforward credits from pre-2023 installations still remain valid. Or homeowners who carried forward $2,000 from a 2022 installation continue claiming that credit in 2026 and beyond. The carryforward provisions persist indefinitely regardless of when the original installation occurred.
Official Sources
- IRS Form 5695 — Official form for claiming residential energy credits and carryforward amounts
- Department of Energy Geothermal Resources — Technical specifications and efficiency data for ground-source heat pumps
- ENERGY STAR Geothermal Tax Credits — Certification requirements and eligible equipment lists
Related Reading: Learn more about Is The Geothermal Tax Credit Still Available.
Frequently Asked Questions
Can you carry over a geothermal tax credit to next year if you don't use it all?
Yes. The IRS permits indefinite carryforward of unused geothermal credits. Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05). And carryforward credits maintain their dollar value without expiration or reduction.
What is the maximum geothermal carryforward tax credit amount?
No maximum exists. The credit equals 30% of total qualifying costs without dollar caps. So a $50,000 installation generates a $15,000 credit, and homeowners carry forward the full unused portion annually. And multiple years of carryforward credits accumulate without limit.
How long can you carry forward a geothermal tax credit?
Indefinitely. The IRS doesn't impose time limits on geothermal credit carryforwards. Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05).
Do geothermal tax credits carryforward to future tax years?
Yes. Unused geothermal credits automatically carry forward when tax liability is less than the credit amount. Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05). And the IRS calculates new carryforward balances based on current-year tax liability.
What's the difference between a geothermal tax credit and carryforward rules?
The federal Residential Clean Energy Credit (Section 25D) ended for expenditures made after December 31, 2025, and the IRS treats an expenditure as made when installation is completed (IRS FS-2025-05). Carryforward rules govern how unused portions transfer to future tax years. Form 5695 only covers qualifying work completed by December 31, 2025 and claimed on a 2025 return; the federal 25C and 25D credits ended after that date (IRS FS-2025-05).
Ready to calculate your geothermal savings? Use our free rebate calculator to estimate your federal tax credit, state rebates, and total installation costs based on your home's specifications and location.
Last updated: April 14, 2026. Reviewed by the DuloCore Editorial Team. About our authors.
Check your California heat pump rebate eligibility — see the programs you qualify for and the dollar amounts on our California heat pump rebate finder.