Geothermal Incentives After the Federal Credit Ended: Your 2026 State Guide

The federal residential geothermal tax credit ended on December 31, 2025. The One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) terminated Section 25D for any residential expenditure made after that date — nullifying the Inflation Reduction Act's prior 30%-through-2032 schedule. For homeowners planning a 2026 ground-source heat pump (GSHP) install, the federal tax-credit pathway as it existed for the prior decade is gone. State incentives, utility rebates, GSE green mortgages, and a new third-party-ownership leasing pathway now carry most of the financial case.

This guide maps what survives at the federal level (commercial §48 ITC, HEAR rebates, HOMES rebates, Fannie Mae HomeStyle Refresh, Freddie Mac GreenCHOICE, USDA REAP loans), then runs the state-by-state landscape with verified 2026 figures. Sources are linked inline.

Federal Reality After OBBBA: What Ended, What Survived

Section 25D Residential Credit: Terminated

Through December 31, 2025, residential GSHP installs qualified for the IRA's 30% Section 25D credit. The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, terminated §25D for any residential expenditure made after Dec 31, 2025. Per IRS guidance, "expenditure made" means installation completed — not contract signed, not deposit paid. A contract executed in November 2025 with system commissioning in February 2026 does not qualify for §25D.

Two narrow exceptions matter:

• Carryforward: Homeowners with §25D credit balances earned on 2025-or-earlier installs that exceeded 2025 tax liability may carry the unused balance forward via IRS Form 5695. Carryforward of pre-2026 credits remains intact.
• Pre-purchased equipment: Equipment purchased and paid for in 2025 but installed later may qualify only if the IRS treats the underlying expenditure as 2025-made — homeowners in this position should consult a tax professional.

Section 48 Commercial ITC: Preserved for Geothermal

OBBBA explicitly preserved the §48 (and its technology-neutral successor §48E) Investment Tax Credit for geothermal heat pump systems. Wind and solar were phased out by 2027 under the same law; geothermal was not. The §48 schedule for geothermal:

• 2026–2032: 6% base credit, scalable up to 30% with domestic-content, prevailing-wage, energy-community, and apprenticeship bonuses
• 2033: 5.2%
• 2034: 4.4%
• After Dec 31, 2034: 0%

The §48 credit is claimed by the entity that owns the system — historically a commercial entity, not a homeowner. That distinction matters for residential homeowners only because of the next item.

Third-Party Ownership Leasing: The New Residential Pathway

With §25D gone for residential installs, third-party ownership (TPO) leasing has surged in 2026. The mechanics: a corporate lessor (often a clean-energy infrastructure fund) installs and owns the GSHP system on the homeowner's property. The lessor claims the §48 ITC at the corporate level — up to 30% with bonuses — and passes the value to the homeowner through a reduced monthly lease payment. The homeowner does not own the equipment but pays a fixed lease payment that is typically lower than the financed cost of an outright purchase plus avoided utility costs.

TPO is a structurally different financial product from purchase. Implications for homeowners considering a 2026 install:

• The system is not yours and does not appear on your home appraisal as a value-add.
• Lease assignment at home sale is contractually defined — most current TPO contracts allow assignment to the buyer, but read the lease carefully.
• No federal tax credit accrues to you. The §48 credit value is captured by the lessor and reflected in the lease pricing; you do not file IRS Form 5695.
• Operations and maintenance responsibility usually sits with the lessor, eliminating heat-pump-replacement risk for the homeowner.

For homeowners without sufficient tax liability to absorb a credit anyway, TPO can deliver economics comparable to or better than the legacy 30% §25D path — but only with a competitive lease offer.

HEEHRA (HEAR) §50122 vs. HOMES Act §50121

The two IRA-funded rebate programs are frequently conflated; they are different programs with different mechanics.

HEEHRA / High-Efficiency Electric Home Rebates (HEAR), §50122: Point-of-sale rebate of up to $8,000 toward a heat pump (including GSHPs). Income-tiered: households below 80% of Area Median Income receive the full rebate; 80%–150% AMI receive 50%. State-administered — rollout pace varies sharply by state. Rebates apply at installation and reduce the homeowner's invoice directly.

HOMES Act §50121: Performance-based whole-home rebate. Pays based on measured (or modeled) energy reduction across the entire home retrofit, not a fixed appliance subsidy. Available to all income levels with higher rebates for low-income households. Distinct funding stream and distinct application process from HEAR.

A homeowner can pursue HEAR or HOMES, but typically not both for the same project; check your state's energy office for current eligibility and stacking rules.

GSE Green Mortgages: The Primary Post-§25D Financing Path

Fannie Mae HomeStyle Refresh: Effective March 31, 2026, Fannie Mae's Special Feature Code 892 launched HomeStyle Refresh — a rebrand and expansion of HomeStyle Energy. Scope now covers cosmetic improvements, energy upgrades (including GSHPs), resiliency work, and environmental remediation, financed against up to 15% of the future home value. For purchase transactions, this lets a buyer roll a GSHP install into the mortgage at first-lien rates rather than pursue a separate home-equity product.

Freddie Mac GreenCHOICE Mortgage: The active alternative on the Freddie side. Allows energy-efficient upgrades (GSHPs included) to be financed into purchase or refinance transactions, with flexible debt-to-income treatment that reflects expected utility savings.

Both programs are origination-side products — homeowners access them through participating lenders, not through Fannie or Freddie directly. For a homeowner financing a 2026 install, mortgage-rolled financing typically beats a 6%–8% home-equity loan or unsecured personal loan by 100–300 basis points on the GSHP-attributable balance.

FHA PowerSaver: Not an Option

FHA PowerSaver pilots ended in 2015. HUD archived the obsolete guidance under 85 FR 69640 (Nov 3, 2020). Any 2026 contractor or financing source still citing PowerSaver as a current product is working from outdated material — verify the program's status before committing.

USDA REAP: Loans Yes, Grants Currently Paused

USDA's Rural Energy for America Program supports rural property owners (including residential properties on rural parcels meeting REAP definitions). Following Executive Order 14315 and the April 15, 2026 rescission notice, REAP grants are paused. REAP loans remain available. The grant/loan distinction matters — if a contractor or local energy office offers "REAP funding," confirm whether it's grant (currently paused) or loan (available).

State Incentive Landscape: Verified 2026 Figures

State incentive programs are uneven. The strong programs in NY, MA, CT, MD, VA, and WA can offset 25%–50% of installed cost; the weak or nonexistent ones in many other states leave homeowners reliant on utility rebates and GSE financing alone. The figures below have been verified against 2026 program documentation; outdated claims circulating in older content are flagged.

New York: Largest State Credit, Recently Increased

Browse New York geothermal contractors who work with NYSERDA Clean Heat and the $10,000 state credit.

New York's residential geothermal tax credit was raised from $5,000 to $10,000 effective July 1, 2025, under Senate Bill S4882 (NY Tax Law § 606(g-4)). The credit is 25% of installed cost, capped at $10,000, primary residence only. Source: tax.ny.gov.

The state credit layers on top of NYS Clean Heat / NYSERDA utility-administered rebates, which currently average $7,000–$9,000 for residential GSHP. NYSERDA programs are administered by participating utilities (Con Edison, National Grid, NYSEG, RG&E, Central Hudson, Orange & Rockland) — your utility determines the exact rebate level.

Stack: 25% state credit (up to $10,000) + NYSERDA rebate (~$7,000–$9,000). On a $35,000 install, this can cover 45%–55% of cost.

Massachusetts: $13,500 Mass Save Rebate (Reduced from 2025)

Browse Massachusetts geothermal contractors familiar with Mass Save rebates.

Mass Save's whole-home GSHP rebate is $13,500 in 2026 — down from $15,000 in 2025. Income-qualified households (≤60% State Median Income) receive up to $25,000. Source: masssave.com.

The Mass Save HEAT Loan is a separate product — 0% APR financing, not a rebate. The two stack: a homeowner can take the $13,500 rebate and finance the remainder via the HEAT Loan. Older content claiming "$15,000 HEAT Loan" conflates the rebate amount with the financing product; they are distinct.

Connecticut: 0.99% Smart-E Heat Pump Special

Find Connecticut geothermal contractors familiar with Smart-E loan paperwork.

The Smart-E Heat Pump Special is a 0.99% APR financing program (not 0%, not PACE) running through June 30, 2026. The standard Smart-E rate is 6.99%–7.99%; the Heat Pump Special is a substantial discount within that program. Source: ctgreenbank.com.

Connecticut also offers Eversource and United Illuminating GSHP rebates (program details and dollar values vary by utility — confirm current figures with your utility).

Maryland, Virginia, Washington: Tax Exemptions, Not Credits

Maryland offers a property tax exemption for residential renewable energy systems including geothermal — assessed value attributable to the GSHP install is excluded from property tax. Verify current participation with your county assessor; municipal participation is not uniform.

Virginia and Washington offer sales tax exemptions on qualifying GSHP equipment. The exemptions are claimed at the point of sale and do not require a homeowner application — the contractor or distributor applies the exemption. Confirm with your contractor that the exemption is being applied to your invoice.

Indiana: Property Tax Deduction Repealed

Indiana's prior property tax deduction for geothermal systems (former IC 6-1.1-12-34) was repealed by Senate Enrolled Act 1 (2025), retroactive to January 1, 2025. The deduction now applies only to assessment dates before Jan 1, 2025. New 2026 Indiana installs do not qualify.

Indiana also requires driller licensing for vertical closed-loop geothermal boreholes per IC 25-39 and 312 IAC 13-8-1. This is not an incentive — it's a compliance cost — but homeowners should verify their contractor uses an Indiana-licensed driller for vertical loops.

Illinois: No State Tax Credit (Common Misconception)

There is no Illinois state-level tax credit for residential GSHP. Older content circulating claims of a "25% Illinois state credit" — this claim is unsupported by any Illinois statute. The actual incentives in Illinois are utility rebates:

• ComEd: $2,000 ducted GSHP / $1,000 ductless
• Ameren: $900 / $630 by configuration

Confirm current rebate amounts with your utility — utility programs adjust annually.

Vermont: No State Tax Credit (Common Misconception)

Similar to Illinois: there is no Vermont state-level tax credit for residential GSHP. The "25% Vermont state credit" claim that appears in some older content does not correspond to any VT statute. Real Vermont incentives:

• Efficiency Vermont: Rebates that vary by utility territory; check current program at efficiencyvermont.com.
• Green Mountain Power: Income-qualified bonus of $2,000 per condenser for eligible households.

Other States: Utility Programs Carry the Weight

Most remaining states do not have state-level GSHP tax credits. Incentive value comes from utility rebate programs, which vary widely. Minnesota homeowners served by Xcel Energy or CenterPoint may qualify for utility GSHP rebates. Pennsylvania, New Jersey, Oregon, and California all rely primarily on utility programs and PACE financing rather than state-level credits.

The single most reliable resource for current state and utility incentive data is DSIRE (dsireusa.org), the Database of State Incentives for Renewables & Efficiency, maintained by the N.C. Clean Energy Technology Center. Verify any incentive claim against DSIRE before committing.

State-by-State Comparison Table

State	State Tax Credit	Utility / Rebate Programs	Other
New York	25% of cost, up to $10,000 (raised 2025-07-01)	NYSERDA / NYS Clean Heat: $7K–$9K avg	Property tax exemption (varies by municipality)
Massachusetts	None	Mass Save: $13,500 (income-qualified to $25,000)	HEAT Loan 0% APR (separate financing); property tax exemption
Connecticut	None	Eversource / United Illuminating GSHP rebates (verify current)	Smart-E Heat Pump Special 0.99% APR through 2026-06-30
Illinois	None (no state statute)	ComEd $2,000 ducted / $1,000 ductless; Ameren $900 / $630	Property tax exemption (renewable energy systems)
Vermont	None (no state statute)	Efficiency Vermont (varies by utility); GMP income-qualified $2,000/condenser	—
Minnesota	None	Xcel Energy / CenterPoint utility rebates (verify current)	—
Pennsylvania	None	Limited utility programs; verify with PPL, PECO, Duquesne, FirstEnergy	PACE financing available in some counties
Indiana	None (property tax deduction repealed 2025-01-01 by SEA 1)	Limited utility programs	Driller licensing required for vertical loops (IC 25-39)
Maryland	None	Limited utility programs	Property tax exemption (verify county participation)
Virginia	None	Dominion Energy programs (verify current)	Sales tax exemption on qualifying equipment
Washington	None	Utility programs vary	Sales tax exemption on qualifying equipment
California	None	CEC / utility rebates: $2,000–$5,000 typical	PACE financing widely available; HERO program
Oregon	None	Energy Trust of Oregon rebates: $1,500–$3,500 typical	—

Utility Rebates: Mechanics and Realistic Expectations

Utility rebates differ from tax credits in three practical ways:

1. Timing: Rebates apply at installation or shortly after, reducing your upfront cash outlay. Tax credits apply only at tax filing — a homeowner with $30,000 of out-of-pocket cost and a $7,500 credit waits until the next April for that $7,500.
2. Eligibility: Rebates depend on your specific utility territory, not your state. A homeowner in one Massachusetts town served by a municipal utility may receive a different rebate than a neighbor 20 miles away served by Eversource.
3. Tier structure: Many utilities offer tiered rebates based on system efficiency (HSPF, EER, COP) or ground-loop configuration. A standard-efficiency system might qualify for a base rebate; a high-efficiency system might unlock $1,500–$3,000 more.

The practical workflow: before signing a GSHP contract, contact your electric utility and request their current heat-pump rebate schedule. Ask specifically about geothermal / ground-source eligibility (some programs target air-source heat pumps but extend to GSHPs at higher rebate levels). Confirm whether your installer is a participating contractor — some programs require pre-approval of the installer.

Property Tax Exemptions

Property tax exemptions for renewable energy improvements operate by excluding the value-add of the GSHP install from your assessed value. A $25,000 install that adds (per NAHB / LBNL / Zillow data) approximately $8,700–$15,000 of home value normally increases your annual property tax by 1%–3% of that increment, depending on local mill rates. The exemption keeps the assessed value at pre-install levels.

Over a 20-year hold, exemption value compounds: in a 1.5% mill-rate jurisdiction with a $12,000 assessed-value increment, the exemption preserves roughly $3,600 of after-tax cash flow (undiscounted). In high-tax jurisdictions like parts of New Jersey or Long Island, the exemption value can exceed $7,000 over the same horizon.

States with documented residential property tax exemptions for renewable energy improvements include Maryland, Massachusetts, New York, Connecticut, and several others — verify with your county or municipal assessor. Exemptions are not automatic in most jurisdictions; they require an application, often filed within a defined window of the install completion date.

Financing: GSE Green Mortgages, HEAT Loans, PACE, and Smart-E

With §25D gone, financing terms substantially affect total cost. The four main paths:

• GSE green mortgage products (Fannie HomeStyle Refresh / Freddie GreenCHOICE): Roll the GSHP into purchase or refi at first-lien rates. Typical advantage of 100–300 basis points over home-equity loans for the GSHP-attributable balance.
• Mass Save HEAT Loan: 0% APR, 7-year terms standard, available to Massachusetts customers of participating utilities. Stacks with the $13,500 Mass Save rebate.
• Connecticut Smart-E Heat Pump Special: 0.99% APR through 2026-06-30, 12-year terms typical, administered through the Connecticut Green Bank.
• PACE financing: Property Assessed Clean Energy. Terms typically 20 years, repaid through property tax bills, attached to the property rather than the borrower. Available in California (R-PACE), parts of Florida, Missouri, and others. PACE is not 0% — rates typically 7%–9% — and adds a senior lien that can complicate refinancing or sale. Read the contract carefully.

For homeowners with limited liquid capital, financing terms can drive 25%+ of total lifetime cost. Run the math on at least two financing paths before committing.

What 2026 Net Cost Actually Looks Like

The 2026 national average installed cost for a 3-ton residential GSHP is approximately $25,500, with a typical range of $20,000–$27,000 in standard soil and $35,000–$50,000+ in granite or New England terrain (drilling drives 50%–70% of total cost for vertical loops). Cost has risen 4%+ year-over-year since 2024, driven primarily by specialized labor wage inflation per RSMeans data.

Working through a representative net-cost calculation for a $30,000 install in three states:

State	Gross Cost	Rebates / Credits	Net Cost
NY (suburban Westchester)	$30,000	NYSERDA $7,500 + NY 25% credit ($7,500 capped at $10K)	~$15,000
MA (suburban Middlesex)	$30,000	Mass Save $13,500	~$16,500 (0% HEAT Loan available)
OH (suburban Cuyahoga)	$30,000	Utility rebate ~$1,500–$3,000 (varies)	~$27,000–$28,500

The state-incentive divide is real: a homeowner in NY or MA can land at 50%–55% of gross cost; a homeowner in a state without a credit and with a thin utility program lands at 90%+ of gross cost. Geothermal economics favor incentive-rich states for the 2026+ install cohort.

Realistic Payback and ROI

Per DOE/EERE modeling and Monte Carlo analysis of installed projects:

• With state incentives + utility rebates: 7–12 year payback typical for residential GSHP, depending on displaced fuel and climate zone.
• Without significant incentives: 10–15 year payback for unincentivized installs.
• Best case (oil-displacement, cold climate, full incentive stack): 5–8 year payback.

Energy savings, per EPA published data, range 30%–70% on heating costs and 20%–50% on cooling vs. conventional systems — savings depend heavily on climate zone and the displaced fuel. Oil and electric resistance displacement deliver the highest savings; modern 97% AFUE gas furnace displacement delivers the lowest.

Equipment lifespan: indoor heat pump unit 20–25 years; ground loop 50+ years. Home value increase per NAHB / Lawrence Berkeley National Laboratory / Zillow data typically lands at $8,700–$15,000, with higher figures up to $20,000 documented in luxury/oil-displacement markets but not typical for median residences. IRR per IEA modeling and peer-reviewed analysis runs 6%–8% baseline for residential GSHP over a 25-year horizon, up to 10%–12% in cold-climate oil-displacement scenarios.

Common Pitfalls in 2026

Outdated content claiming the federal credit is still available

The largest pitfall is content (contractor brochures, blog posts, even some installer websites) still claiming the 30% federal credit is available through 2032. This is incorrect for any 2026+ install. Verify federal status against the IRS §25D page directly.

Conflating HEAR and HOMES

HEAR ($50122, point-of-sale, up to $8,000 for heat pumps) and HOMES ($50121, performance-based whole-home) are different programs. A contractor or energy advisor referring to "the IRA $8,000 heat pump rebate" means HEAR specifically. Confirm which program your state's energy office has stood up — rollout pace varies.

Over-relying on contractor incentive estimates

Contractors are often 6–12 months behind on program changes. The $5,000 NY credit became $10,000 on July 1, 2025; the $15,000 Mass Save rebate dropped to $13,500 in 2026. Verify against the state agency directly before relying on the figure for a financial decision.

Missing application windows

Several state and utility programs have hard funding caps and close mid-fiscal-year. NYSERDA pipelines and utility rebate funding can exhaust before December. If you're in a state with an aggressive rebate, do not delay the application past contract execution.

System efficiency vs. rebate-tier mismatch

Some utilities offer tiered rebates (e.g., a base rebate at minimum-efficiency, plus a $1,500–$3,000 bonus at HSPF/COP thresholds). A contractor specifying minimum-efficiency equipment to hit a price point may forfeit thousands in rebates. Ask explicitly about tier requirements before equipment selection.

TPO lease terms

Third-party ownership leasing can be a strong path for the right homeowner, but lease terms vary widely. Read the contract for: lease length (typically 15–25 years), escalation clauses, assignment rules at home sale, performance guarantees, and end-of-lease options (purchase, removal, extension). Treat the lease as you would any 20-year financial product.

How to Find a Contractor Who Knows the 2026 Landscape

The most useful question to ask a contractor in 2026 is: "Walk me through how OBBBA affects my install." A contractor who answers with confidence and accuracy — covering §25D termination, the §48 / TPO pathway, and your state's current rebate landscape — is current. A contractor who still references the 30% federal credit through 2032 has not updated their material in 12+ months.

Other diagnostic questions:

• What is the current Mass Save / NYSERDA / [your state] program rebate amount as of this month?
• Are you a participating contractor with my utility's rebate program?
• Can you facilitate the rebate application, or do I file it?
• What efficiency tier qualifies for the highest rebate, and what's the equipment cost difference?
• Do you offer or partner with TPO leasing providers? What's the lease structure?

Use GeothermalFinder to locate IGSHPA-certified contractors in your area who are current on 2026 programs.

FAQ: Geothermal Incentives After OBBBA

Can I still claim the federal §25D credit?

Only for residential expenditures made (installations completed) on or before December 31, 2025. The One Big Beautiful Bill Act (P.L. 119-21) terminated §25D for any residential expenditure made after that date. If you completed a GSHP install in 2025 and have unused credit balance, carryforward via IRS Form 5695 remains available.

Is there any way to access the 30% federal credit on a 2026 install?

Not directly as a homeowner via §25D. The §48 commercial ITC remains active for geothermal at 6% base, scalable to 30% with bonuses, but it is claimed by the system owner. The practical residential pathway is third-party ownership leasing — a corporate lessor claims §48 at the entity level and reflects that value in your lease pricing.

Which states have the strongest 2026 incentive packages?

New York (25% credit up to $10,000 + NYSERDA $7K–$9K rebate), Massachusetts ($13,500 Mass Save rebate + 0% HEAT Loan financing), and Connecticut (0.99% Smart-E Heat Pump financing + utility rebates) lead. Maryland (property tax exemption), Virginia and Washington (sales tax exemptions) provide structural cost reductions without direct rebates.

What happened to the Indiana property tax deduction?

SEA 1 (2025) repealed the prior IC 6-1.1-12-34 deduction retroactive to January 1, 2025. New 2026 Indiana installs do not qualify; only assessment dates before Jan 1, 2025 are covered.

Are HEEHRA (HEAR) and HOMES the same program?

No. HEAR (§50122) is a point-of-sale rebate up to $8,000 for heat pumps, income-tiered. HOMES (§50121) is a performance-based whole-home rebate, paid on measured or modeled energy reduction. Different funding streams, different application processes, different mechanics. Most states allow one or the other for a given project, not both.

Can I roll a GSHP into my mortgage?

Yes, via Fannie Mae HomeStyle Refresh (effective March 31, 2026, replaces HomeStyle Energy) or Freddie Mac GreenCHOICE Mortgage. Both are origination-side products accessed through participating lenders. They typically beat home-equity loan rates by 100–300 bps on the GSHP-attributable balance.

Is FHA PowerSaver still an option?

No. The FHA PowerSaver pilot ended in 2015; HUD archived the obsolete guidance under 85 FR 69640 (Nov 3, 2020). Any current source citing PowerSaver is outdated.

What about USDA REAP for rural properties?

REAP loans remain available. REAP grants are paused following Executive Order 14315 and the April 15, 2026 rescission notice (Federal Register 2026-07332). Confirm the current status with your USDA Rural Development office before relying on REAP funding.

How do I verify a contractor's incentive claim?

Cross-check against the state energy office, the utility's official rebate schedule, and DSIRE (the Database of State Incentives for Renewables & Efficiency). If the three sources disagree, treat the state agency or utility as authoritative — DSIRE and contractor materials lag program changes.