Homeowners in the United States are facing an important deadline for geothermal heating and cooling system. The federal 25D residential tax credit that has helped reduce upfront costs for years is being phased out at the end of 2025.
Is it a loss? In some respects, yes; however, new state tax credits and rebates, combined with leasing programs supported by recent federal legislation, may make geothermal more accessible than before.
Federal Incentives Are Changing, But It's Not All Bad
The 25D credit has long been a major driver for geothermal adoption. Its phase-out at the end of the year changes the picture for many families.
Instead of direct-to-homeowner credits, new incentives are shifting toward models that give homeowners more financing options while encouraging third-party ownership.
Understanding how the new models will work should put you at ease:
“First, it’s important to understand that tax incentives and rebates for geothermal heating and cooling are not going away," reiterated Maggie McCarey, vice president of policy and strategy at Dandelion Energy. "Many state and local governments, and utilities, are investing in geothermal as they recognize its ability to reduce demand on the electrical grid, reduce greenhouse gas emissions, and lower energy bills for consumers."
Staying apprised of opportunities in your region are your best approach.
"For example, New York State doubled its potential state geothermal tax incentive in July, making it so homeowners could qualify for up to a $10k tax credit if they install a geothermal heating and cooling system.
She adds, "The recent passage of H.R. 1 (the “One Big Beautiful Bill”) also introduced a new pathway for residential geothermal heating and cooling to take advantage of up to a 50% tax credit for leased geothermal systems. We expect this will enable more third-party ownership models to reduce up front costs and allow broader adoption of geothermal.”
The "One Big Beautiful Bill" has major implications for many Americans and eliminated tax credits for other low-carbon energy sources, but for now, it spared geothermal.
When you break it down, the new emerging option could be even more flexible for many households.
Geothermal Leasing Lowers the Upfront Barrier
The price tag is the only reason my own home hasn't been upgraded to geothermal.
While these systems save thousands of dollars over time by replacing fuel oil or natural gas, the installation cost can be steep.
A full system can run tens of thousands of dollars, which has historically limited adoption.
When I learned about leasing programs, I knew this would be a game-changer for many homeowners. Instead of paying the entire system cost upfront, homeowners can lease the equipment for a predictable monthly payment.
How do we know it should work? Well, the leasing model has already transformed the solar industry, and geothermal advocates believe it could do the same here.
“Geothermal leasing is an exciting development that will make geothermal heating and cooling more affordable by further reducing upfront costs and enabling more people to adopt the technology," shared McCarey.
She added, "Unlike the phase-out of the 25D consumer credit, the commercial Investment Tax Credit (ITC) for geothermal heating and cooling will continue to be available through 2034. H.R. 1 also introduced the option of geothermal leasing under the commercial ITC for residential customers."
"This new provision will enable third-party ownership models, where a company finances and owns the geothermal system and charges homeowners over time for the system. The lease option allows for low to no up front investment, significant ongoing operating cost savings from these energy efficient systems, and a predictable lease payment and term."
For families who don’t want to wait another decade for a new furnace or central air system, leasing could be a way to move forward now without straining their finances.
State Programs Continue to Expand
While federal incentives are evolving, states are stepping up. As McCarey highlighted, New York’s geothermal credit doubling to $10,000 is one of the clearest signals of state-level commitment. Other states, such as Massachusetts, Connecticut, and Maryland, are also expanding rebates and credits for renewable heating and cooling.
Why the push? Geothermal systems lower strain on the electric grid and provide stability in energy pricing, both of which help state governments and utilities meet climate and reliability goals. For homeowners, these programs mean that even without the 25D credit, you could still access thousands of dollars in incentives.
Eligibility varies, so it’s worth checking with your local utility or state energy office. Some programs are stackable with federal leasing incentives, which could create significant savings.
FAQ
What makes leasing different from financing a system with a loan?
With a loan, you own the system and are responsible for the entire cost, maintenance, and claiming credits. With a lease, the third-party company owns the system, and you pay a monthly fee. The company can use tax incentives like the ITC, passing on the savings in the form of lower payments.
Does geothermal add value to a home?
Inevitably, yes. A geothermal heat pump system signals to buyers that the home has a stable, long-term energy savings solution. With ground loops warrantied for 50 years and indoor components lasting 20–25 years, geothermal reduces the risk of major HVAC system expenses down the line. This can make a home more appealing in the resale market, especially as more buyers look for sustainable and efficient options.
