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. The credit applies to equipment, labor, permitting, and balance-of-system components on principal residences filing IRS Form 5695, stacking with Bay Area utility rebates and California state programs to reduce net costs by 40-55%.
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). A $28,000 system generates an $8,400 credit. California Energy Commission rebates and PG&E incentives stack independently, reducing total project costs by $12,000-$18,000 for median installations.
What Is the Geothermal Tax Credit Percentage and How Much Can You Save?
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). San Francisco installations averaging $28,000 generate $8,400 in federal credits, with equipment and labor both qualifying. And unlike older Section 25D provisions that expired January 1, 2026, the current IRA framework removes all dollar caps on geothermal systems.
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).
But savings extend beyond federal credits. PG&E's Energy Efficiency Program rebates add $2,000-$4,000 for qualifying systems, while California's Equity Resilience Rebate Program provides $3,000-$5,000 for income-qualified households. So total first-year reductions reach $13,400-$17,400 on a $28,000 installation. Geothermal tax credits combine with state incentives to deliver 48-62% cost reduction, converting a $28,000 system into a $10,600-$15,600 net investment.
What Are the Annual and Equipment Caps for Geothermal Tax Credits in San Francisco?
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). A $50,000 San Francisco installation generates a $15,000 credit, while a $20,000 system claims $6,000—both processed in a single tax year. And unlike the $2,000 annual cap on heat pump air-source systems, ground-source equipment faces no restrictions.
But the credit applies only to principal residences owned by the taxpayer. Rental properties, investment homes, and second residences don't qualify. So San Francisco homeowners installing multiple systems across properties claim credits only on their primary dwelling. The unlimited structure favors high-efficiency systems with upfront costs of $25,000-$35,000, where 30% credits offset $7,500-$10,500 in a single filing year.
Equipment costs, installation labor, permitting fees, trenching, drilling, and balance-of-system components all qualify. But routine maintenance, service contracts, and cosmetic upgrades don't. And systems must remain operational for at least five years or face partial recapture. Use our free rebate calculator to model combined federal and California savings.
Which Geothermal Equipment Qualifies for the 2026 Tax Credit?
ENERGY STAR certified ground-source heat pumps with Energy Efficiency Ratio (EER) ratings of 16+ and Coefficient of Performance (COP) of 3.1+ qualify for the 30% federal credit (this federal credit ended for expenditures made after December 31, 2025). San Francisco installations use closed-loop vertical systems with 300-500 foot boreholes or horizontal loops requiring 1,500-2,500 square feet of yard space. And open-loop systems drawing from aquifers qualify if San Francisco Public Utilities Commission permits allow groundwater extraction.
"Geothermal heat pumps use the constant temperature of the earth as the exchange medium instead of the outside air temperature." — DOE Geothermal Heat Pumps
But air-source heat pumps don't qualify under geothermal provisions—they claim a separate $2,000 credit under different IRS codes. So homeowners choosing between technologies face distinct credit structures: unlimited geothermal versus capped air-source. And hybrid systems combining ground-source and air-source components allocate credits proportionally based on equipment costs.
Qualifying components include heat exchangers, circulation pumps, desuperheaters for hot water production, control systems, and zone valves. But ductwork modifications, thermostat upgrades, and electrical panel improvements claim separate credits under the $1,200 annual home improvement cap. Energy tax credits layer across multiple improvement categories with distinct filing requirements.
What Income Limits Apply to San Francisco Geothermal Tax Credits?
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). San Francisco households earning $50,000 or $500,000 both claim the full 30% credit on qualifying systems. And unlike means-tested state rebates that phase out above $150,000-$180,000 household income, federal credits apply universally based on tax liability.
But starting January 1, 2033, the credit reduces to 26% for all filers, then drops to 22% in 2034 before expiring. So installations completed by December 2032 lock in the maximum 30% rate regardless of future income. And taxpayers with insufficient tax liability in the installation year carry forward unused credits up to five years, spreading claims across 2026-2031 tax returns.
California's stacking programs do impose income limits. The Tech Clean California Equity Resilience Rebate provides $3,000-$5,000 for households earning below 80% Area Median Income ($112,000 for a family of four in San Francisco), while PG&E's Energy Savings Assistance Program requires income below 200% of federal poverty level ($62,400 for four-person households). So federal credits apply universally while state rebates target moderate and lower-income brackets.
How Do You Claim Your Geothermal Credit—Which Tax Form Do You File?
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 calculated credit transfers to Schedule 3 (Form 1040), Line 5, reducing total tax liability dollar-for-dollar. And unlike deductions that lower taxable income, credits directly offset taxes owed.
Documentation requirements include manufacturer certification statements confirming ENERGY STAR compliance, itemized contractor invoices separating equipment from labor, building permits, and final inspection reports. But the IRS doesn't require submission with the original return—taxpayers retain records for three years in case of audit. And amended returns using Form 1040-X reclaim missed credits from prior tax years within the statute of limitations.
San Francisco installations completed in December 2026 claim credits on 2026 tax returns filed by April 15, 2027. But systems placed in service January 2027 wait until the 2027 tax year filing in April 2028. So timing installations before December 31 accelerates credit realization by 12 months. And taxpayers owing less than the credit amount carry forward unused portions to future years, with no expiration through 2031.
When Did the Geothermal Tax Credit Start and When Does It Expire?
The current 30% geothermal tax credit took effect August 16, 2022, under the Inflation Reduction Act, replacing the expiring Section 25D framework that ended December 31, 2025. San Francisco homeowners claim the 30% rate through December 31, 2032, when it steps down to 26% for 2033 installations and 22% for 2034 before expiring January 1, 2035.
But prior iterations existed since 2005. The Energy Policy Act established a 30% geothermal credit from 2008-2016, which the Bipartisan Budget Act extended through 2021 with phase-downs starting in 2020. 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 the program has existed intermittently for 21 years with varying rates and caps.
Installations must be "placed in service" by the deadline, meaning operational and producing energy—not merely purchased or under construction. But IRS Safe Harbor provisions allow taxpayers to claim credits if they've paid 5% of total costs and completed installation within two years. So San Francisco projects beginning in late 2031 with substantial progress by year-end qualify even if final commissioning occurs in early 2032.
Can You Stack Geothermal Credits With Other Rebates and Incentives?
San Francisco homeowners stack federal geothermal credits with California Energy Commission rebates, PG&E utility incentives, and local Bay Area Air Quality Management District programs without penalty. A $28,000 installation claims $8,400 federal credit, $3,000 CEC Technology Incentive, $2,500 PG&E Energy Efficiency rebate, and $1,200 BAAQMD electrification incentive—totaling $15,100 in first-year reductions.
| Program | Amount | Income Limit | Deadline |
|---|---|---|---|
| Federal IRA Credit | Ended Dec 31, 2025 | — | Ended Dec 31, 2025 |
| CEC Tech Incentive | $2,000-$4,000 | None | June 30, 2027 |
| PG&E Efficiency Rebate | $1,500-$3,000 | 200% FPL for bonus | Rolling |
| BAAQMD Electrification | $1,000-$2,000 | <80% AMI ($112k) | Dec 31, 2026 |
But rebates reduce the qualified cost basis for federal credits. A $28,000 system receiving $6,700 in state/local rebates calculates the federal credit on $21,300 ($28,000 - $6,700), generating $6,390 instead of $8,400. So total savings reach $13,090 ($6,700 + $6,390), representing 47% cost reduction. And IRS rules require reporting state rebates as cost reductions, not as taxable income.
Property tax exemptions add further savings. California's Property Tax Exclusion for Active Solar Energy Systems exempts geothermal installations from property tax reassessment, preventing annual tax increases of $300-$600 on $28,000 systems. Heat pump rebates layer across federal, state, utility, and local levels with coordinated non-duplication rules.
What's the Step-by-Step Process to Apply for San Francisco's Geothermal Tax Credit?
Homeowners begin by obtaining written quotes from NABCEP-certified contractors, verifying ENERGY STAR compliance for qualifying equipment, and confirming San Francisco building permits for drilling/trenching work. Installation occurs over 3-7 days for vertical systems or 5-10 days for horizontal loops, with final inspections by the Department of Building Inspection required before system activation.
After project completion, homeowners collect manufacturer certification statements, itemized contractor invoices separating equipment from labor, building permits with final approval stamps, and utility interconnection agreements if required. 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 taxpayers hiring CPAs or tax preparers provide this documentation during annual filing.
State rebate applications process separately. PG&E's online portal accepts applications within 180 days of installation completion, requiring proof of purchase, final invoices, and completed W-9 forms. And California Energy Commission programs use a pre-approval workflow: reserve funds before installation, submit documentation after completion, receive payment within 60-90 days. So federal credits claim at tax time while state rebates arrive as direct payments 2-4 months post-installation.
Official Sources
- IRS Energy Efficient Home Improvement Credit — Federal tax credit eligibility, forms, and filing requirements (note: the federal 25C and 25D credits ended for projects completed after December 31, 2025)
- DOE Geothermal Heat Pumps — Technical specifications and efficiency standards for qualifying systems
- DSIRE California Incentives — State, utility, and local rebate program database with current rates and deadlines
Frequently Asked Questions
What is the geothermal tax credit amount for 2026?
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). San Francisco systems averaging $28,000 generate $8,400 federal credits, while $35,000 installations claim $10,500. And the credit applies to equipment, labor, permits, drilling, and balance-of-system components on principal residences.
Are geothermal systems eligible for federal tax credits in San Francisco?
Yes. 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). Both closed-loop systems (vertical or horizontal) and open-loop configurations using groundwater qualify if SFPUC permits allow aquifer access. But systems must meet minimum efficiency standards: EER 16+ and COP 3.1+.
How do I claim the geothermal tax credit on my taxes?
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 calculated credit transfers to Schedule 3 (Form 1040), Line 5, directly reducing tax liability. Retain manufacturer certifications, contractor invoices, permits, and inspection reports for three years. And unused credits carry forward up to five years if tax liability is insufficient.
What is the deadline to claim the geothermal 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 rate drops to 26% for 2033 installations and 22% for 2034 before expiring January 1, 2035. But IRS Safe Harbor provisions allow credit claims if 5% of costs are paid by the deadline and installation completes within two years.
How does the geothermal tax credit compare to heat pump rebates?
Geothermal systems claim unlimited 30% federal credit (this federal credit ended for expenditures made after December 31, 2025)s averaging $8,400 on $28,000 installations. Air-source heat pumps receive a separate $2,000 federal credit plus $8,000-$14,000 in California TECH Clean rebates, totaling $10,000-$16,000. But geothermal delivers 300-500% heating efficiency versus 200-350% for air-source, generating $1,200-$1,800 annual savings that recover higher upfront costs within 8-12 years.
Ready to calculate your total savings? Use our free rebate calculator to combine federal credits, California rebates, and PG&E incentives for your San Francisco geothermal project. Get personalized estimates based on your system size, income level, and local utility rates in under 60 seconds.
Updated: April 14, 2026 — fact-checked by DuloCore Research. About our editorial process.
Check your California heat pump rebate eligibility — see the programs you qualify for and the dollar amounts on our California heat pump rebate finder.