The 30% Federal Geothermal Tax Credit
The Residential Clean Energy Credit (formerly the Residential Energy Efficient Property Credit) provides a tax credit equal to 30% of the cost of qualified geothermal heat pump systems installed in your home. This credit is available for systems installed through December 31, 2032.
30%
Credit Amount
No Cap
On Residential
2032
Available Through
Unlike a deduction, a tax credit directly reduces the amount of tax you owe dollar-for-dollar. A $10,000 tax credit saves you $10,000 in taxes.
How to Claim the Credit
- 1
Install a Qualifying System
Have a geothermal heat pump system installed by a qualified professional. The system must meet ENERGY STAR requirements at the time of installation.
- 2
Keep All Documentation
Save all receipts, invoices, and manufacturer certifications. You will need these to support your tax credit claim.
- 3
File IRS Form 5695
When you file your federal tax return, complete IRS Form 5695 (Residential Energy Credits) and include it with your return.
- 4
Receive Your Credit
The credit reduces your federal tax liability. If the credit exceeds your tax liability for the year, you can carry the unused portion forward to future tax years.
Eligibility Requirements
Primary or secondary residence: The system must be installed in a home you own and use as a residence. Rental properties do not qualify for this residential credit.
New installations only: The credit applies to the original installation of a new geothermal heat pump system, not used or refurbished units.
ENERGY STAR certified: The heat pump must meet ENERGY STAR requirements at the time of installation.
All components included: The credit covers the heat pump unit, ground loop, ductwork modifications, and installation labor.
What Costs Are Covered?
Covered
- Geothermal heat pump unit
- Ground loop installation
- Installation labor
- Ductwork modifications
- Desuperheater (water heating)
Not Covered
- Maintenance and repairs
- Extended warranties
- Rental property installations
- Used or refurbished equipment
State and Local Incentives
Many states offer additional incentives that can be combined with the federal tax credit for even greater savings. These may include:
- •State tax credits: Some states offer their own tax credits on top of the federal credit
- •Utility rebates: Many electric utilities offer rebates for installing geothermal systems
- •Property tax exemptions: Some jurisdictions exclude geothermal improvements from property tax assessments
- •Low-interest loans: State programs may offer subsidized financing for clean energy projects
Contact your local installer to learn about specific incentives available in your area. Many installers listed in our directory offer tax credit assistance.