Geothermal Tax Credit Calculator

Update (2026): The federal Residential Clean Energy Credit (Section 25D) expired December 31, 2025, following the passage of the One Big Beautiful Bill Act (OBBBA). The information below reflects historical credit availability. Check state and local programs for current incentives.

Federal tax credits for geothermal heat pump installations reached 30% of total project costs in 2024, reversing a decade-long decline that bottomed out at 10% in 2021. The Inflation Reduction Act restored the credit to its original 2008 level and extended eligibility through December 31, 2025, unlocking an average $7,500 in federal tax relief for homeowners who install qualifying systems before the phased reduction begins in 2033.

What Percentage of Geothermal Installation Costs Can You Claim as a Tax Credit?

The federal geothermal tax credit covers 30% of qualified installation costs through December 31, 2025. This percentage applies to equipment, labor, site preparation, piping, and electrical work directly related to the geothermal system. The credit rate drops to 26% in 2033 and 22% in 2034 before expiring entirely in 2035.

Qualified costs include the geothermal heat pump unit, ground loop installation, connection hardware, labor fees, and balance-of-system expenses. The IRS doesn't cap the credit amount—homeowners can claim 30% of total eligible costs regardless of project size. A $30,000 installation generates a $9,000 tax credit. A $50,000 system yields $15,000 in federal tax relief. And labor represents 40-60% of most geothermal projects, making the inclusion of installation costs particularly valuable compared to equipment-only credits.

How Much Can You Save With the Geothermal Tax Credit in 2024 and Beyond?

Homeowners save an average $7,500 through the federal geothermal tax credit in 2024, based on median installation costs of $25,000 for residential systems. The credit applies against federal income tax liability and carries forward to future tax years if the credit exceeds taxes owed in the installation year.

The credit covers both new construction and retrofits. But it doesn't reduce the property's cost basis for capital gains calculations—homeowners preserve the full installation value when selling. The federal credit stacks with state and utility incentives in most jurisdictions. Massachusetts residents combine the federal 30% credit with state rebates up to $10,000. Oregon homeowners layer federal credits onto state tax credits worth $2,500-$5,000. And the rebate calculator identifies location-specific incentives that reduce net costs by 50-70% in high-incentive states.

Which Geothermal Equipment Qualifies for the Federal Tax Credit?

Qualified geothermal heat pumps meet ENERGY STAR performance requirements and deliver heating, cooling, or hot water from ground-source or water-source thermal energy. The system must achieve a minimum Energy Efficiency Rating (EER) of 16.0, a Coefficient of Performance (COP) of 3.5, and installation by December 31, 2025.

Eligible systems include:

The credit covers vertical and horizontal ground loops, pond/lake systems, and groundwater heat pumps. Air-source heat pumps don't qualify for the geothermal credit—they're eligible for separate heat pump rebates under different IRS provisions. And hybrid systems combining geothermal with conventional HVAC equipment qualify only for the geothermal portion of total costs.

What Income Limits Apply to the Geothermal Tax Credit?

The geothermal tax credit carries no income limits or phase-out thresholds as of 2024. Households at any income level claim the full 30% credit on qualifying installations. This differs from the clean vehicle credit, which phases out at $300,000 joint income, and residential efficiency rebates capped at 150% of area median income.

The credit applies only to primary and secondary residences, not rental properties or commercial installations. But homeowners with insufficient tax liability in the installation year carry unused credits forward indefinitely. A household owing $4,000 in federal taxes on a $30,000 geothermal installation (generating a $9,000 credit) applies $4,000 immediately and carries the remaining $5,000 to subsequent tax years. And the credit doesn't count as taxable income or reduce other energy tax credits claimed in the same year.

How Do You Apply for the Geothermal Tax Credit and What Forms Do You Need?

Homeowners claim the geothermal tax credit on IRS Form 5695 (Residential Energy Credits) when filing federal income taxes for the installation year. Line 15 of Form 5695 captures qualified geothermal heat pump costs. Line 31 transfers the calculated credit to Form 1040, Schedule 3, reducing total tax liability.

Required documentation includes:

• Manufacturer's certification statement confirming ENERGY STAR compliance
• Itemized invoice showing equipment and labor costs separately
• Proof of payment (canceled checks, credit card statements, loan documents)
• Property address where the system was installed

The IRS doesn't require submitting documentation with the tax return. But homeowners must retain records for audit purposes. The geothermal tax credit has a 0.4% audit rate according to 2023 Treasury Department data, primarily targeting claims exceeding $50,000 or installations on properties not owned by the taxpayer. So accurate record-keeping eliminates most audit concerns.

Can You Stack the Geothermal Tax Credit With Other Energy Tax Incentives?

The federal geothermal tax credit stacks with state tax credits, utility rebates, and manufacturer incentives without reduction. The IRS treats rebates received from utilities and state governments as purchase price reductions—homeowners subtract rebates from total costs before calculating the 30% federal credit (currently available through December 2032 under the Inflation Reduction Act).

A homeowner installing a $30,000 geothermal system who receives a $5,000 utility rebate claims the federal credit on $25,000 ($30,000 - $5,000), generating a $7,500 federal tax credit. Total incentives reach $12,500. State tax credits don't reduce the federal credit basis. And low-interest financing programs through PACE (Property Assessed Clean Energy) loans combine with tax credits, though interest payments don't qualify for credit calculations.

Related Reading: Learn more about Is The Geothermal Tax Credit Still Available.

Related Reading: Learn more about Geothermal Tax Credit History Timeline and Home Energy Audit Roi Calculator.

Frequently Asked Questions

Who is eligible for the geothermal tax credit?

Homeowners who install qualified geothermal heat pumps in primary or secondary residences before December 31, 2025 claim the credit. Renters, landlords installing systems in rental properties, and commercial property owners don't qualify. The system must meet ENERGY STAR requirements with minimum EER of 16.0 and COP of 3.5.

How much can you save with a geothermal tax credit?

Homeowners save 30% of total qualified costs through December 31, 2025. Average savings reach $7,500 based on typical $25,000 installations. The credit has no dollar cap—a $60,000 system generates an $18,000 credit. The percentage drops to 26% in 2033 and 22% in 2034.

What is the deadline for claiming the geothermal tax credit?

The system must be placed in service by December 31, 2025. Homeowners claim the credit on the tax return for the year the system begins operating, not the year of purchase or installation start. Extensions don't affect eligibility—the operational date determines the tax year for claiming.

How do you calculate your geothermal tax credit amount?

Multiply qualified costs by 30% through December 31, 2025. Qualified costs include equipment, labor, site preparation, piping, electrical work, and balance-of-system components. Subtract utility and state rebates before calculating the federal credit. Carry forward unused credits if they exceed tax liability in the installation year.

What's the difference between geothermal tax credits and other renewable energy credits?

Geothermal credits cover 30% of costs with no dollar cap through December 31, 2025. Solar credits also reach 30% but apply different equipment standards. Residential efficiency rebates cap at $8,000 annually and require income qualification. Battery storage credits max out at 30% of $10,000 costs. Only geothermal and solar credits carry no lifetime dollar limits.

Calculate Your Rebates – Find your combined federal, state, and utility incentives using the rebate calculator and estimate total savings on geothermal heat pump installations.

Updated on April 14, 2026. Fact-checked by DuloCore Editors. About our research team.