Geothermal Tax Credit 2026: What's Left After OBBBA

Geothermal Tax Credit 2026 — Current Status

Status (updated June 2026): The federal 30% residential geothermal tax credit (§25D) is terminated for installations completed after December 31, 2025 — Congress ended it in the One Big Beautiful Bill Act (P.L. 119-21). Still available in 2026: carry-forward of pre-2026 §25D credits, the §48 commercial credit (6% base, up to 30% with bonuses, including through third-party-ownership leases), HEEHRA/HOMES rebates, and many state programs — all detailed below.

Congress changed the rules on residential geothermal tax credits in mid-2025, and most of the marketing copy you'll find online still hasn't caught up. If you're a homeowner planning a geothermal install in 2026, or a contractor fielding questions from confused customers, the headline is short: the federal 30% residential credit is gone for new installations completed in 2026 and after. Several other paths still exist, and a few of them are bigger than people realize.

This article walks through what the One Big Beautiful Bill Act (OBBBA, P.L. 119-21) actually did, what's still on the table at the federal level, and which state programs survived. We'll cite government sources directly so you can verify each claim before making a five-figure decision.

What OBBBA Did to the Residential Geothermal Tax Credit

The One Big Beautiful Bill Act was signed into law on July 4, 2025. It terminated the §25D Residential Clean Energy Credit for new geothermal expenditures made after December 31, 2025. That includes geothermal heat pumps for primary residences and second homes that were previously covered under the Inflation Reduction Act's 30% credit.

The IRA had previously extended §25D at 30% through 2032, with a step-down beginning in 2033. OBBBA nullified that schedule for residential geothermal. The text of the bill is on the public record at congress.gov (P.L. 119-21).

One important nuance: the IRS defines an "expenditure made" as the date installation is completed, not the date you signed a contract or paid a deposit. If your contractor poured the loop field in November 2025 but didn't commission the system until February 2026, the credit doesn't apply. The cutoff is mechanical and unforgiving.

Is the geothermal tax credit going away?

The residential federal geothermal tax credit (§25D) is already gone for new installations completed after December 31, 2025. Congress terminated it in the One Big Beautiful Bill Act (P.L. 119-21) signed July 4, 2025. The commercial credit (§48), state programs, and federal rebates like HEEHRA continue. If you completed a residential install before the cutoff, you can still claim or carry forward your unused credit on IRS Form 5695.

Carry-Forward Rules for 2025 Installations

If your geothermal system was installed and commissioned before December 31, 2025, you're still eligible for the 30% §25D credit. The credit is non-refundable, which means it can only zero out federal income tax owed; it doesn't generate a refund check. Any unused portion can be carried forward to future tax years.

That carry-forward is the one piece of §25D that survives into 2026 and beyond. You file using IRS Form 5695, which calculates the residential energy credit and tracks carry-forward balances. The IRS guidance for residential clean energy is at irs.gov.

Practical example: a homeowner who installed a $36,000 geothermal system in October 2025 generated a $10,800 credit. If they only owed $6,000 in federal income tax for tax year 2025, the remaining $4,800 carries to 2026 and forward until used. New 2026 installations don't generate any new §25D credit.

How does the 30% geothermal tax credit work?

For 2022 through 2025 installations, §25D allowed homeowners to claim 30% of qualified geothermal heat pump expenditures as a non-refundable federal income tax credit. Qualified costs included equipment, labor, piping, wiring, and installation. There was no dollar cap. Homeowners filed using IRS Form 5695. The credit only offset tax owed; unused amounts carried forward. OBBBA terminated this credit for installations completed after December 31, 2025.

What's Still Available at the Federal Level in 2026

The residential picture changed, but the federal toolkit didn't disappear. Three paths matter for homeowners and small commercial buyers in 2026, plus a handful of mortgage-side products that are easy to overlook.

The §48 Commercial Credit (Geothermal Was Preserved)

While OBBBA accelerated the phase-out of wind and solar credits, geothermal was explicitly preserved under §48. The base rate is 6%, and bonus stackers — domestic content, prevailing wage, energy community location, and apprenticeship — can push the effective rate to 30%. The technology-neutral §48E provides the same treatment for newer installations.

The phase-down schedule for geothermal under §48 looks like this:

This matters for residential homeowners more than it sounds. Because §48 is a commercial credit, it can be claimed by a corporate lessor through a Third-Party Ownership (TPO) lease. The lessor installs and owns the system, claims the credit, and passes the savings to the homeowner through reduced lease payments. TPO is rapidly becoming the practical replacement for residential §25D.

Is the energy tax credit available in 2026?

The residential §25D credit for new geothermal installations is not available in 2026. The §48 commercial credit is, with a 6% base rate that can stack to 30% with domestic content, prevailing wage, energy community, and apprenticeship bonuses. §48 runs at 6% through 2032, then steps down to 5.2% in 2033, 4.4% in 2034, and zero after December 31, 2034. The §25C credit covers some efficiency upgrades but not full geothermal systems.

HEEHRA and HOMES — Rebates, Not Credits

The Inflation Reduction Act created two state-administered rebate programs that survived OBBBA. They're rebates rather than tax credits, which means they reduce the up-front cost rather than offsetting income tax owed.

The High-Efficiency Electric Home Rebate Act (HEEHRA, §50122 of the IRA) provides up to $8,000 for heat pumps, including ground-source heat pumps. The amount is tied to household income: under 80% of Area Median Income gets the full rebate, 80% to 150% AMI gets half, and households over 150% AMI don't qualify. Funds flow through state energy offices, and rollout timing varies state by state.

The HOMES Act (§50121) is a separate program — performance-based, whole-home retrofit. It pays based on modeled or measured energy savings rather than equipment type. Some states allow stacking HEAR and HOMES on the same project; others don't. The Department of Energy maintains a state-by-state portal at energy.gov.

For income-qualified households, HEEHRA can cover a substantial portion of a geothermal install. We track the current state-by-state availability on our geothermal rebates guide.

Mortgage-Side Products (Often Overlooked)

Two GSE products let homeowners roll geothermal into a mortgage rather than financing it separately. Fannie Mae's HomeStyle Refresh, effective March 31, 2026, replaces the older HomeStyle Energy with broader scope. It covers cosmetic improvements, energy upgrades, resiliency, and environmental remediation, with financing up to 15% of the post-improvement appraised value (Selling Guide Communication SFC 892).

Freddie Mac's GreenCHOICE Mortgage covers similar ground and is already active. Both options can package a geothermal install with other home improvements at mortgage rates rather than higher-interest contractor financing.

USDA REAP — Loans Still, Grants Paused

The Rural Energy for America Program (REAP) historically offered both grants and loans for renewable energy and efficiency projects in rural areas. As of 2026, the loan path remains usable. The grant path was paused by Executive Order 14315 and a formal rescission notice published in the Federal Register on April 15, 2026 (notice 2026-07332).

If you've seen 2026 marketing material claiming "USDA REAP grants for residential geothermal," that copy is out of date. The loan path through USDA Rural Development is still active for eligible rural addresses.

FHA PowerSaver — Already Defunct

One quick myth-bust: the FHA PowerSaver pilot is not a 2026 option. The pilot ended in 2015 and was formally archived under HUD 85 FR 69640 published November 3, 2020. Any source listing PowerSaver as currently available is recycling stale information.

State Programs That Matter in 2026

With §25D gone, state-level incentives carry more weight. The landscape is uneven — some states have expanded their programs, others have repealed theirs. Below are the verified specifics for the most active programs as of early 2026.

New York

New York's Clean Heat geothermal incentive cap was raised from $5,000 to $10,000 effective July 1, 2025, under S4882 (NY Tax Law § 606(g-4)). The program is state-administered through participating utility partners. For a typical residential geothermal install, the New York incentive plus HEEHRA (for income-qualified households) can offset a meaningful share of total cost. We maintain a state-specific landing at /find/new-york/.

Massachusetts

Mass Save's 2026 ground-source heat pump rebate is $13,500 for a whole-home install, down from $15,000 in 2025. Income-qualified households may receive up to $25,000. Massachusetts also offers the HEAT Loan, which is 0% APR financing — not a rebate. These are separate products, and stacking them is allowed for qualifying households.

If you see a quote from a Massachusetts contractor that bundles "Mass Save rebate + HEAT Loan" as one number, ask them to break it out. The rebate is direct savings; the HEAT Loan is just financing terms. Our Massachusetts contractor directory lists IGSHPA-certified installers familiar with both.

Connecticut

Connecticut Green Bank's Smart-E Loan Heat Pump Special runs at 0.99% APR through June 30, 2026. It is not 0%, and it is not PACE-style financing — those are common misstatements. Smart-E is a conventional secured loan administered by participating local lenders under the Green Bank's underwriting criteria.

Indiana

Indiana's geothermal property tax deduction was repealed under Senate Enrolled Act 1 (2025), retroactive to January 1, 2025. If you're reading older state-by-state guides that still list this deduction, it's no longer available. Indiana homeowners now rely on federal §48 (via TPO), HEEHRA where eligible, and utility-specific rebates.

States With Confirmed Fabricated Claims

Several "25% state credit" claims circulate online for states that have no such program. Two we've directly verified as fabricated:

• Illinois: There is no 25% state geothermal credit. The real Illinois landscape is utility-driven — ComEd offers $2,000 for ducted heat pumps and $1,000 for ductless.
• Vermont: There is no 25% state geothermal credit. Vermont rebates run through Efficiency Vermont and vary by utility territory.

If you see either of these on a contractor's marketing page, flag it. The full verified state landscape is at /costs/geothermal-incentives-by-state/.

The TPO Lease Math

For homeowners shut out of §25D in 2026, the third-party ownership lease is becoming the dominant alternative. Here's the rough mechanics. A corporate lessor installs and owns the geothermal system. Because they own it, they claim §48 — 6% base, up to 30% with bonus stacking. The lessor amortizes that credit and passes savings to the homeowner through a fixed monthly lease payment.

The math doesn't work for every household. TPO leases typically extend 15 to 25 years and require a credit check. Lease payments are usually higher than what a homeowner would pay if they purchased outright, but lower than financing a purchase at current rates without §25D. For homeowners who don't have the cash for a $30,000-$50,000 install and don't want to take on additional mortgage debt, TPO is often the only way to put a geothermal system in the ground in 2026.

Run the comparison through our 2026 tax credit calculator and our ROI calculator with state rebates included before signing anything.

Comparing Total 2026 Costs vs. Air-Source Alternatives

The end of §25D narrows the up-front cost gap argument that geothermal contractors used for years. A typical residential geothermal install runs $30,000 to $50,000 before incentives. An air-source heat pump install runs $8,000 to $20,000. Geothermal still wins on long-run operating cost — typical 25% to 50% lower utility bills depending on climate zone — but the up-front gap is larger now without the federal credit absorbing 30%.

For most households, the 2026 question is whether the operating savings plus state rebates plus possible HEEHRA plus possible TPO arrangement still justify the larger ticket. In states with strong rebates (NY, MA, CT, NJ) and for households that qualify for HEEHRA, the answer is often still yes. In states with weak rebates and households above HEEHRA income thresholds, the math is tighter than it was in 2025.

Our geothermal vs. air-source comparison walks through the 2026 numbers in detail, and our cost methodology page explains the state-by-state ranges.

What is the IRS credit for geothermal energy?

The IRS administered two geothermal credits. §25D was the residential credit at 30% of qualified expenditures, terminated for installations completed after December 31, 2025 by OBBBA. §48 is the commercial Investment Tax Credit at 6% base, up to 30% with bonus adders, available for geothermal heat pumps through December 31, 2034 with a phase-down beginning 2033. Form 5695 covers §25D filings; Form 3468 covers §48.

Is there still a geothermal tax credit in 2026?

Yes for commercial installations and Third-Party Ownership leases under §48 (6% base, up to 30% with bonuses, through 2032 then phase-down). No for new residential purchases under §25D — that ended December 31, 2025. Homeowners with 2025 installations can still carry forward unused credits using Form 5695. State programs and HEEHRA rebates continue separately, and may be more valuable in 2026 than the residential federal credit was for many households.

What to Do If You're Mid-Project

If you started a residential geothermal project in 2025 but the install slipped into 2026, the §25D credit doesn't apply. The IRS rule is mechanical: completion date governs. There is no exception for contracts signed in 2025, deposits paid in 2025, or equipment delivered in 2025.

If you're in this position, talk to your contractor about whether the project can be restructured as a commercial-owned TPO arrangement. Some installers maintain TPO partnerships that can take title to the system and claim §48, then convert to a lease. This is a non-trivial restructure and may not pencil out, but it's worth pricing.

If you haven't started yet, your 2026 stack is: state rebates + HEEHRA (if income-qualified) + possibly a TPO lease + possibly a Fannie or Freddie green mortgage product to finance any remaining gap. The total can still be material — in some states it adds up to more than the §25D credit alone offered — but it requires actively assembling the pieces.

Sources to Verify Before Signing Anything

Before you commit to any 2026 geothermal financing, verify the program details directly with primary sources. Federal status: irs.gov for §25D, congress.gov P.L. 119-21 for OBBBA text. State programs: each state's energy office or public utility commission. Mortgage products: Fannie Mae and Freddie Mac selling guides. Rebate availability: your state energy office's HEEHRA rollout schedule.

Contractor marketing materials are not a primary source. If a quote, brochure, or sales presentation cites a tax credit or state program, ask for the citation. If they can't provide one, the program may be misstated, expired, or fabricated. The fabricated "Illinois 25%" and "Vermont 25%" claims are common enough that they're now a screening question worth asking.

Bottom Line

The residential federal geothermal tax credit is over for new 2026 installs. The commercial credit, HEEHRA rebates, state programs, mortgage products, and TPO leases continue. For homeowners, the 2026 picture is more fragmented than 2025 was — and for many households, more state-dependent. The math still works in most strong-rebate states, especially when HEEHRA is in play. It works less well in low-incentive states where §25D was doing most of the lifting.

If you're shopping for a contractor, ask which 2026 stack they're quoting against — federal §48 / TPO, state, HEEHRA, mortgage product — and ask them to cite each one. Our directory of IGSHPA-certified contractors and our state-by-state rebate guide are kept current as state programs change.