Geothermal Tax Credit Expiration What Now

The federal residential clean energy tax credit covered 30% of geothermal heat pump installation costs through December 31, 2025—then Congress let it expire. And homeowners who installed systems in 2025 can still claim the credit on 2026 tax returns filed before April 15, 2026. But anyone breaking ground in 2026 faces the full $15,000–$35,000 installation cost without federal tax relief.

What Was the Annual Cap on the Geothermal Tax Credit Before Expiration?

The Section 25D geothermal tax credit had no annual dollar cap through 2025. (note: the original Section 25C/25D credits expired December 31, 2025; they were replaced by updated credits under the Inflation Reduction Act) Homeowners claimed 30% of total qualified expenses including equipment, labor, piping, pumps, and electrical upgrades. A $25,000 system generated a $7,500 credit. A $35,000 installation with underground loop field modifications returned $10,500. And the IRS placed no ceiling on the credit amount, unlike the $1,200 annual cap that limited energy-efficient HVAC upgrades under Section 25C.

The geothermal tax credit applied 30% to all qualified geothermal heat pump costs through December 31, 2025, with no annual dollar limit or lifetime cap. Homeowners claimed the full percentage on installations ranging from $15,000 basic systems to $40,000 complex loop fields. Eligible expenses included ENERGY STAR certified equipment and installation labor costs.

"Qualified geothermal heat pump property costs are eligible for a credit equal to 30% of the amount paid or incurred by the taxpayer" — IRS Publication 5866

So homeowners who installed systems before January 1, 2026, can claim the full 30% credit when filing 2025 tax returns in early 2026. But installations starting January 1, 2026, or later receive zero federal tax credit support.

Is the Geothermal Tax Credit Refundable or Non-Refundable?

The expired Section 25D geothermal credit operated as a non-refundable tax credit. Homeowners reduced their federal income tax liability dollar-for-dollar up to the credit amount, but excess credits above tax owed did not generate a refund check. A taxpayer with $8,000 in federal tax liability and a $10,500 geothermal credit paid zero taxes but lost the remaining $2,500. And the IRS allowed unlimited carryforward of unused credits to future tax years until the full amount was absorbed.

Non-refundable status meant homeowners needed sufficient tax liability to capture the credit's full value. And retirees or low-income households with minimal federal tax bills often carried forward credits across multiple years. But the credit reduced alternative minimum tax (AMT) liability starting in 2023, expanding its usefulness for higher-income filers.

Check our rebate calculator to compare remaining state and utility incentives for geothermal installations in 2026.

Who Was Eligible for the Geothermal Tax Credit in 2025?

Any U.S. taxpayer who installed a qualified geothermal heat pump in an existing or new principal residence before December 31, 2025, qualified for the 30% credit. Homeowners, condominium owners, cooperative housing residents, and owners of manufactured homes with permanent foundations all met eligibility requirements. And renters who owned their mobile home but not the land beneath it could claim the credit. But landlords who installed geothermal systems in rental properties did not qualify unless they also used the property as a principal residence for part of the year.

The IRS required ENERGY STAR certification for all equipment and professional installation by licensed HVAC contractors. And systems had to meet thermal efficiency ratio requirements: heating COP of 3.3 or higher and cooling EER of 14.1 or higher. So DIY installations or non-certified equipment failed to generate credits even when installed before the December 31, 2025 deadline.

"The credit applies to qualified geothermal heat pump property installed in connection with a dwelling unit located in the United States and used as a residence by the taxpayer" — IRS Form 5695 Instructions

How Did You Claim the Geothermal Tax Credit on Your Tax Return?

Homeowners claimed the geothermal credit by completing IRS Form 5695 (Residential Energy Credits) and attaching it to Form 1040 when filing their federal tax return. Part I of Form 5695 captured qualified geothermal heat pump costs including equipment purchase price, installation labor, and necessary electrical upgrades. And taxpayers multiplied total costs by 30% to calculate the credit amount, then transferred the result to Schedule 3 (Form 1040), line 5.

The IRS did not require manufacturer certification statements or contractor invoices at the time of filing. But the agency recommended retaining all purchase receipts, installation contracts, and ENERGY STAR certification documents for at least 7 years in case of audit. And taxpayers who failed to claim the credit on their original return filed Form 1040-X (Amended U.S. Individual Income Tax Return) within 3 years of the original filing deadline to capture missed credits.

Form 5695 also handled carryforward calculations when credit amounts exceeded annual tax liability. Line 16 captured unused credits from prior years, and line 18 calculated the portion carried forward to the next tax year.

What Are Your Options Now That the Geothermal Tax Credit Has Expired?

State rebates and utility incentive programs replace some of the lost federal support in 2026. California's TECH Clean California program offers up to $3,000 for qualifying heat pump installations including geothermal systems. And Pacific Gas & Electric provides $2,500–$5,000 in incentives for households replacing gas furnaces with electric heat pumps. But total state and utility support rarely exceeds $8,000—far below the $7,500–$10,500 federal credits that expired.

Regional programs vary by climate zone and local utility provider. Check the Database of State Incentives for Renewables & Efficiency for current 2026 offerings in your zip code. And some manufacturers now offer 0% financing for 60–84 months to offset the loss of federal tax credits, spreading costs across 5–7 years instead of requiring upfront capital.

Or homeowners prioritize energy tax credits that remain active through 2032 under the Inflation Reduction Act framework, including weatherization improvements and electrical panel upgrades that reduce geothermal system operating costs.

How Does the Expired Geothermal Credit Compare to Other HVAC Tax Incentives?

The table below compares the expired federal geothermal credit to remaining 2026 HVAC incentives:

The expired geothermal credit offered the highest dollar value for qualifying installations. A $30,000 geothermal system generated a $9,000 federal credit in 2025. But air-source heat pump systems eligible for the $2,000 IRA credit cost $8,000–$15,000 installed—delivering faster payback periods despite lower absolute incentive amounts.

And heat pump rebates under the IRA's Home Energy Rebate programs stack with federal tax credits for households earning below 150% of area median income, adding $4,000–$8,000 in direct rebates to the $2,000 tax credit.

Official Sources

• DOE Geothermal Heat Pumps — Technical specifications and efficiency requirements for residential geothermal systems
• IRS Form 5695 — Official tax form for claiming residential energy credits including expired geothermal provisions
• DSIRE Database — Comprehensive state-by-state rebate and incentive tracking for renewable energy systems

Frequently Asked Questions

Did the federal geothermal tax credit expire?

Yes. The Section 25D geothermal tax credit expired December 31, 2025. And Congress did not renew the credit for 2026 or beyond. Homeowners who installed qualified geothermal heat pumps before January 1, 2026, can still claim the 30% credit when filing 2025 tax returns by April 15, 2026. But installations starting in 2026 receive zero federal tax credit support. State and utility programs remain active but offer $2,000–$5,000 instead of the $7,500–$10,500 federal credits common in 2025.

What geothermal rebates are available after the tax credit ended?

State energy offices and utility providers offer the primary geothermal incentives in 2026. California's TECH Clean California provides up to $3,000 for electric heat pump installations including geothermal systems. And regional utilities like Pacific Gas & Electric and Southern California Edison offer $2,500–$5,000 for gas furnace replacements. Northeast states including Massachusetts and Connecticut maintain $3,000–$6,000 rebates for ground-source heat pumps through Clean Energy Finance programs. Check DSIRE for zip-code-specific programs active in 2026.

Can I still claim geothermal installation on my taxes in 2026?

Homeowners who installed geothermal systems in 2025 claim the 30% credit on 2025 tax returns filed in early 2026. But installations completed January 1, 2026, or later generate zero federal tax credits. And taxpayers who failed to claim the credit on 2024 or 2025 original returns file Form 1040-X within 3 years of the original deadline to amend returns and capture missed credits. So a 2023 installation has until April 15, 2027, to claim the credit via amended return.

How much money can I save with geothermal heat pumps without the tax credit?

Geothermal systems reduce heating and cooling costs by 30%–60% compared to conventional gas furnaces and air conditioners. A household spending $2,400 annually on HVAC energy saves $720–$1,440 per year with geothermal. And installation costs of $20,000–$30,000 deliver 10–15 year payback periods without federal tax credits. But stacking state rebates ($3,000–$5,000) and utility incentives ($2,500–$5,000) cuts net costs to $12,000–$22,000, improving payback to 7–12 years in most climate zones.

What are the best alternatives to the federal geothermal tax credit?

Air-source heat pumps qualify for the IRA's $2,000 federal tax credit through 2032 and cost $8,000–$15,000 installed—one-third the price of geothermal systems. And cold-climate air-source models operate efficiently at temperatures down to -13°F, matching geothermal performance in most U.S. regions. State programs including TECH Clean California and utility rebates stack with the federal credit for total incentives of $5,000–$10,000. Or homeowners earning below 150% of area median income access Home Energy Rebate programs offering $4,000–$8,000 in direct rebates for heat pump installations.

Ready to find remaining incentives for your home? Use our free rebate calculator to discover state rebates, utility incentives, and federal tax credits for heat pumps, weatherization, and electrical upgrades active in 2026.

Last updated: April 14, 2026. Reviewed by the DuloCore Editorial Team. About our authors.