Residential Tax Credits Are Ending, But Demand Continues

The 30% federal tax credit for residential geothermal heat pump installations ended in 2025 under the One Big, Beautiful Bill Act. Geothermal systems work by moving heat that already exists in the ground rather than burning fuel, which makes them 3.5 to 5 times as efficient as the best fossil-fuel furnaces. Industry voices say interest in these systems hasn't dropped off the way it did the last time credits disappeared, back in 2016, when sales fell 45 percent. High or rising energy costs, like the spike in New England electricity prices this past winter, tend to push homeowners toward geothermal regardless of tax incentives.

One notable change from the new law: it now allows a third party to own a geothermal system installed at your home and lease it to you. That opens the door to state and utility incentives, plus tradable credits called G-RECs (Geothermal Renewable Energy Credits), tied to the clean energy the system generates. Companies offering these leases can use those incentives to lower monthly lease rates, which could make geothermal more affordable even without the federal credit.

If you're weighing geothermal against a standard furnace and air conditioner, the upfront cost is typically higher, but paybook period runs three to five years through energy savings. Whether it makes sense depends on your local energy costs, how well insulated your home is, and your heating and cooling habits. Financing and leasing options, not just tax credits, are increasingly what determines whether these systems pencil out for homeowners.