25D Geothermal Heating and Cooling Federal Tax Credits: A Guide for Homeowners

FEDERAL RESIDENTIAL CLEAN ENERGY CREDIT (25D)

Federal 25D geothermal heating and cooling tax credit

The 25D Geothermal Heating and Cooling tax credit is available to federal taxpayers who install geothermal heat pumps in their homes.

View other eligible projects under this tax credit:

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Disclaimer: The information presented here is for educational purposes only. It is not intended to provide specific tax guidance. For questions regarding your individual tax situation, we suggest consulting with your tax advisor.

Tax Credit

30%

Available now

What is the 25D geothermal heating and cooling tax credit?

The federal government offers an uncapped tax credit to cover 30% of eligible costs of purchasing and installing a geothermal heat pump for all households who pay federal income tax.

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This incentive is available through the 25D Residential Clean Energy Property Credit, a US government program that covers 30% of the cost of eligible geothermal heating and cooling systems.

The 25D tax credit doesn’t just apply to geothermal technology. It also covers several other residential clean energy property upgrades, including solar panels and solar water heaters.

Here’s a list of residential projects that qualify for the 25D tax credit:

Project Type	How much funding can you receive from 25D for qualifying projects?
Project Type:Solar panels	How much funding can you receive from 25D for qualifying projects?:30% of qualified expenditures made for property placed in service beginning in 2022 through 2032.
Project Type:Solar water heaters	How much funding can you receive from 25D for qualifying projects?: 30% of qualified expenditures made for property placed in service beginning in 2022 through 2032. Must be certified for performance by the non-profit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the State in which the property is installed.
Project Type:Geothermal heat pumps	How much funding can you receive from 25D for qualifying projects?: 30% of qualified expenditures made for property placed in service beginning in 2022 through 2032. Equipment must meet Energy Star program standards at the time of purchase.
Project Type:Battery storage technology	How much funding can you receive from 25D for qualifying projects?: 30% of qualified expenditures made for property placed in service beginning in 2022 through 2032. Battery storage technology must have a capacity of 3 kilowatt-hours or greater.

Source: Internal Revenue Service

Unlike some federal tax credits, the 25D tax credit can be claimed year after year. For instance, if you use the 25D tax credit to install geothermal technology in 2024, you can apply for the same tax credit again in 2025 to cover another qualifying home project.

Tax credit limitations

The 25D geothermal tax credit will cover up to 30% of your geothermal project’s eligible costs. There’s no cap, or maximum dollar amount, for projects that qualify under this tax credit.

Generally, you must subtract any price adjustments from the cost of the item. This can mean rebates, utility subsidies, financial incentives, and anything else that lowers the price point. This part can get a little tricky, so be sure to check the Frequently asked questions about energy efficient home improvements and residential clean energy property credits for more information.

The 25D tax credit is “non-refundable,” which means that you can't get back more than you pay in federal income taxes.

If 30% of your project’s cost is $6,000, but you only owe $1,000 in federal income taxes that year, you would receive a $1,000 credit.

Who qualifies for the 25D geothermal heating and cooling tax credit?

This tax credit applies to everyone who pays federal income taxes.

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No income requirements

There are no income limitations for the 25D Tax Credit. However, like nearly all federal tax credits, you must pay federal income taxes to qualify.

All US residents who live in their homes

The 25D tax credit can be applied to a new or existing home that is located in the United States. Renters are eligible. This means that unlike 25C tax credits, a home that is under construction when you apply for the geothermal tax credit can qualify.

Additionally, you must live in the property at least part of the year. Landlords can never claim this credit for homes they rent out but do not use as a residence themselves.

Which geothermal heating and cooling projects qualify?

Geothermal heat pump property must meet ENERGY STAR program standards in order to qualify for this tax credit.

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There are a few requirements your geothermal heating and cooling system must meet to qualify for this tax credit.

First, qualifying systems must be brand new and installed between 2022 and 2032.

Systems must also improve energy efficiency and meet the requirements of the ENERGY STAR program that are in effect at the time that the equipment purchase is made.

You can include labor costs associated with onsite preparation, assembly, or installation of your geothermal heating and cooling system as part of your 25D tax credit. Purchase and installation of piping and wiring required to connect new equipment with your home may also qualify for this credit.

If you aren’t sure which geothermal heating and cooling systems qualify, talk to your contractor. They’ll help you select technology and associated equipment that is likely to qualify for the 25D tax credit.

How to apply for the 25D geothermal heating and cooling tax credit

Fill out IRS Tax Form 5695 and submit it with your federal tax return.

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Document all expenses associated with the purchase, preparation, assembly, and installation of your geothermal heat pump property. Save receipts and invoices or contact your contractor to obtain copies.
Fill out IRS Form 5695, Residential Energy Credits. For instructions on how to fill out the form, including more in-depth information about individual amounts you can claim, see the IRS’s Instructions for Form 5695.
Submit the form along with your annual tax return.
You may enjoy a lower tax bill or bigger refund!

Keep in mind that you can only apply for and claim the 25D tax credit for the year your geothermal heat pump is installed. Here’s what we mean: if you purchase your equipment in late 2023 but don’t have it installed until 2024, you have to file the tax credit with your 2024 tax return.

Discover other incentives with the incentives calculator!

There are other incentives that you may qualify for. Our incentive calculator will show you a personalized list of incentives.

Go to Incentive Calculator

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