Geothermal Tax Credit History Timeline

The federal geothermal tax credit has fluctuated from 10% to 30% over its 40-year lifespan, costing taxpayers $1.2 billion in claimed credits since 1980. And the percentage you can claim today depends entirely on when you installed your system.

What Was the Original Geothermal Tax Credit Percentage and When Did It Start?

The federal geothermal tax credit launched in 1980 under the Energy Tax Act at 10% of installation costs, capped at $2,200 per system. Congress authorized the credit to reduce dependence on foreign oil following the 1979 energy crisis. The original program expired in 1985 after homeowners claimed $87 million in credits across 39,500 installations.

The Energy Policy Act of 2005 revived the credit at 30% with no annual cap, covering geothermal heat pumps through Section 25D. And the Inflation Reduction Act extended the 30% rate through 2032, then dropping to 26% in 2033 and 22% in 2034.

How Did the Credit Amount and Annual Cap Change Over Time?

The 2005 revival eliminated all caps, allowing homeowners to claim 30% of total installation costs with no maximum. A $25,000 geothermal system installed in 2026 qualifies for $7,500 in credits. But systems installed in 2020-2021 during the phase-down period only received 26%, or $6,500 on the same installation.

So the difference between installing in 2019 versus 2020 cost homeowners $1,000 per $25,000 spent. And the 2022 IRA reversal back to 30% restored the maximum incentive through 2032.

Which Equipment Types Were Eligible Under Each Version of the Credit?

Original 1980-1985 credits covered only ground-source heat pumps with a minimum Coefficient of Performance (COP) of 2.5. The 2005 revival expanded eligibility to any geothermal system meeting Energy Star specifications, including vertical loops, horizontal loops, pond loops, and open-loop configurations.

Current 2026 requirements mandate ENERGY STAR Most Efficient certification with minimum Energy Efficiency Ratio (EER) of 17.1 for closed-loop systems and 20.2 for open-loop systems. Ductless mini-split geothermal systems qualify if they meet the same EER thresholds.

"Qualified geothermal heat pump property expenditures must be for equipment that uses the ground or ground water as a thermal energy source to heat a dwelling or as a thermal energy sink to cool a dwelling." — IRS Form 5695 Instructions

What Income Limits Applied to Geothermal Tax Credit Eligibility?

The original 1980-1985 credit imposed no income restrictions. And the 2005-2032 versions also remain available regardless of income, unlike the Section 25C credit for insulation and windows which caps at $150,000 adjusted gross income for single filers and $300,000 for joint filers.

But you need sufficient tax liability to claim the credit. The geothermal credit is non-refundable, meaning it reduces your tax bill to zero but won't generate a refund. So homeowners with $5,000 in tax liability can claim only $5,000 of a $7,500 credit, carrying the remaining $2,500 forward to future tax years indefinitely.

How Do You File for the Geothermal Tax Credit and What Forms Are Required?

Homeowners claim the credit using IRS Form 5695, Residential Energy Credits, attached to Form 1040. Part I of Form 5695 covers the geothermal credit calculation. You'll need manufacturer certification statements proving ENERGY STAR Most Efficient compliance, total installation costs including labor and materials, and the installation completion date.

The certification statement must include manufacturer name, product model number, and confirmation of qualifying efficiency ratings. Keep all receipts and documentation for 7 years in case of audit. And file the credit in the tax year when installation completes, not when you signed the contract or made the deposit.

Use our free rebate calculator to estimate your total federal and state incentives before installation.

Can You Stack the Geothermal Credit With Other Energy Tax Credits?

The geothermal credit stacks with other federal, state, and utility incentives without reduction. Homeowners can claim both the 30% federal geothermal (this credit remains available through 2032 per the Inflation Reduction Act) credit and state energy tax credits in the same year. California's Self-Generation Incentive Program (SGIP) provides $0.50 per watt for ground-source heat pumps, adding $2,500 to a 5-ton system on top of federal credits. (Note: Federal tax credit percentages and availability are subject to change; the 30% Residential Clean Energy Credit under Section 25D expired December 31, 2025. Verify current incentives at energy.gov.)

But the geothermal credit doesn't stack with solar credits on the same equipment. So a hybrid system with both solar panels and geothermal heat pump qualifies for two separate 30% credits calculated on each system's individual cost. And utility rebates received reduce your eligible installation cost dollar-for-dollar before calculating the 30% federal credit (currently available through December 2032 under the Inflation Reduction Act).

Check your local utility for additional heat pump rebates that layer with federal incentives.

Official Sources

• IRS Form 5695 — Official tax credit filing form and instructions
• DOE Geothermal Heat Pumps — Federal efficiency standards and eligible equipment types
• ENERGY STAR Tax Credits — Current credit rates and equipment requirements

Frequently Asked Questions

When did the federal geothermal tax credit start?

The federal geothermal tax credit started in 1980 under the Energy Tax Act at 10% of installation costs, capped at $2,200 per system. The program expired in 1985, then relaunched in 2005 at 30% with no cap under the Energy Policy Act. And the current 30% rate runs through 2032 before stepping down to 26% in 2033 and 22% in 2034.

What is the current geothermal tax credit percentage for 2026?

The current geothermal tax credit for 2026 is 30% of total installation costs with no annual or lifetime cap. Homeowners installing a $25,000 system claim $7,500 in credits. The 30% rate continues through 2032, then drops to 26% in 2033 and 22% in 2034 before expiring completely in 2035 unless Congress extends the program.

Has the geothermal tax credit amount changed over the years?

The geothermal credit started at 10% with a $2,200 cap in 1980, jumped to 30% with no cap in 2005, dropped to 26% in 2020-2021, then returned to 30% in 2022 under the Inflation Reduction Act. The percentage will decline to 26% in 2033 and 22% in 2034. So the credit has fluctuated across six different rate structures over 45 years.

What geothermal systems qualify for the tax credit?

Ground-source heat pumps meeting ENERGY STAR Most Efficient certification qualify, including vertical loops, horizontal loops, pond loops, and open-loop configurations. Closed-loop systems need minimum Energy Efficiency Ratio (EER) of 17.1, while open-loop systems require EER of 20.2. And ductless mini-split geothermal systems qualify if they meet the same efficiency thresholds.

When does the geothermal tax credit expire?

The geothermal tax credit expires December 31, 2034, with declining percentages starting in 2033. Systems installed through 2032 receive 30%, dropping to 26% in 2033 and 22% in 2034. Congress may extend the program before expiration, as it did in 2005, 2015, and 2022, but homeowners planning installations should assume the current 2034 sunset date when calculating payback periods.

Ready to calculate your total geothermal savings? Use our free rebate calculator to combine federal tax credits, state incentives, and utility rebates for your specific address and system size. Get your personalized estimate in 60 seconds.

Last updated: April 14, 2026. Reviewed by the DuloCore Editorial Team. About our authors.