Geothermal Tax Credit 2026: Is the Federal Credit Still Available?

If you're shopping for a geothermal heat pump in 2026, you have probably read — on this site and on many others — that a 30% federal tax credit will cover a large chunk of the cost.

It will not. That credit ended for systems placed in service after December 31, 2025. If you are budgeting a 2026 installation, you need to plan on paying the full installed cost, minus whatever your state and utility offer.

The Bottom Line

Here's the short version:

• The 30% residential credit is gone for new installs. IRC §25D applied to qualified property installed from 2022 through December 31, 2025. It does not apply after that date.
• If your system was placed in service by December 31, 2025, you can still claim it. File IRS Form 5695 with your 2025 return.
• The commercial credit is a different provision and was not repealed. Section 48E still covers qualifying commercial geothermal projects.
• State and utility programs are unaffected. They now carry the entire incentive load for residential buyers, and they vary enormously by state.

What the Law Actually Says

The Inflation Reduction Act of 2022 amended Section 25D and set out a schedule that was supposed to run for more than a decade: 30% for systems installed 2022 through 2032, 26% in 2033, 22% in 2034, and 0% starting 2035. That is the schedule the industry — and this site — marketed for three years.

That schedule never played out. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025 as Public Law 119-21, accelerated the termination of Section 25D. Under the OBBBA, the credit is not allowed for expenditures made after December 31, 2025. There was no phasedown and no grace period — the step-downs to 26% and 22% were repealed before they ever took effect.

So if you see a page (including our own older coverage, or an installer's brochure) citing "26% in 2033" or "22% in 2034," those rates are not a future schedule you can plan around. They were repealed.

What the IRS Says

The IRS Residential Clean Energy Credit page states it plainly:

"The Residential Clean Energy Credit equals 30% of the costs of new, qualified clean energy property for your home installed anytime from 2022 through December 31, 2025. The credit is not available for any property placed in service after December 31, 2025."

— IRS.gov, Residential Clean Energy Credit

The IRS has also published an overview of the OBBBA's clean energy provisions at IRS.gov, reflecting the same termination date.

What Form 5695 Says

The 2025 Instructions for Form 5695 carry the same rule: residential clean energy credits cannot be claimed for expenditures made after December 31, 2025.

Form 5695 is the form used to actually claim the credit, and its instructions are what tax preparers apply in practice. It agrees with the statute and with the IRS guidance page. There is no live disagreement among these sources.

Correction: What We Previously Reported

We owe readers a direct account of what we got wrong.

An earlier version of this article, published in March 2026, framed the situation as a contradiction: we noted the IRS page said the credit ended after 2025, observed that a different passage on the same page referenced a 2033 phase-out, and concluded that the most likely explanation was an uncorrected website error. We told readers "the credit is still active today" and advised them not to wait for clarity.

That conclusion was wrong. We failed to identify the OBBBA, which had already repealed the credit at the time we published. The stale 2033 language was the error on the IRS page — not the expiration notice. We reached the wrong conclusion about which half was the mistake, and readers who acted on it may have budgeted a 2026 project expecting several thousand dollars that will not arrive.

If you made a purchase decision based on our earlier reporting, we're sorry. Re-run your numbers using the full installed cost, and talk to a tax professional before filing anything.

What You Should Do Right Now

If your system was placed in service on or before December 31, 2025:

1. Claim the credit on your 2025 return. Form 5695, with geothermal heat pump property entered on Line 4. If you have already filed and omitted it, ask your preparer about an amended return.
2. Keep your documentation. Contractor invoice, manufacturer's certification statement, and proof of the placed-in-service date.
3. Remember the carryforward. The credit is non-refundable, but unused amounts carry forward to later tax years. The credit ending for new installs does not affect carryforward balances you have already established.

If you are planning a 2026 installation:

1. Budget the full installed cost. Do not subtract 30% from any quote. If a contractor's proposal still nets out a federal credit, that proposal is out of date — ask for a corrected one.
2. Check your state and utility programs. These are independent of federal tax law and were not touched by the OBBBA. They vary widely; see our state-by-state guides and verify current amounts directly with your state energy office or utility.
3. Re-run the payback math. A project that penciled at a 7-year payback with the credit will take longer without it. Whether it still makes sense depends on what fuel you're replacing, your electricity rate, and how long you plan to stay.
4. Talk to a tax professional — a CPA or tax attorney who tracks energy provisions — before relying on any credit, federal or state.

Commercial Installations: Section 48/48E

The OBBBA's repeal of Section 25D applies to residential installations. The commercial investment tax credit framework — primarily Section 48E, the Clean Electricity Investment Credit — was not repealed by it and remains available for qualifying geothermal projects.

The commercial structure is more complicated than a flat residential percentage: there is a base rate, and bonus rates that require meeting prevailing wage and registered apprenticeship requirements. The IRS maintains a page for the Section 48E credit. Certain tax-exempt entities — municipalities, tribal governments, rural cooperatives — may also access elective payment in lieu of the credit.

If you are a commercial property owner, developer, agricultural operation, or municipality, the federal picture is genuinely different from the residential one. Work through it with a tax professional rather than assuming the residential repeal applies to you.

State Incentives Still Available

With the federal credit gone, state and utility programs are the entire residential incentive picture. They were independently authorized and are unaffected by the OBBBA. The categories worth checking:

• State tax credits — several states offer their own income tax credits for geothermal installations
• Utility rebates — electric utilities in many states offer rebates for ground-source heat pump installations
• Property tax exemptions — some states exempt the added home value from property tax assessment
• Sales tax exemptions — some states exempt geothermal equipment from sales tax
• Low-interest financing — state energy offices sometimes offer favorable loan terms

Amounts, caps, and eligibility change frequently, and some programs are funded year to year. Check our state-by-state guides for what we've documented, then verify current terms with your state energy office or utility before you count on any of it.

The Bottom Line

The 30% federal geothermal tax credit under Section 25D is not available for property placed in service after December 31, 2025. This is settled — the statute, the IRS guidance page, and the Form 5695 instructions all agree.

If you installed in 2025, claim it. If you're buying in 2026, budget the full cost, lean on state and utility programs, and make the decision on the operating economics rather than on a credit that no longer exists. Geothermal's efficiency advantage is a matter of physics and hasn't changed. The financing math has.