A geothermal (ground-source) heat pump works on the same heat-moving principle as an air-source unit, but exchanges heat with the ground instead of the outdoor air. A buried loop of pipe circulates fluid through the shallow earth, which stays a stable 40–70°F year-round regardless of the weather above it. Because the system never has to pull heat from frigid winter air or dump it into 110°F summer air, it avoids the efficiency penalty that air-source units take at the extremes — the DOE puts modern ground-source COPs in the 3.9–6.0 range, above what air-source can reach on a cold day.
That efficiency comes at a much higher install cost, because the ground loop must be trenched or drilled. The trade-off is longevity and operating cost: indoor equipment lasts on the order of 20–25 years and the buried loop can last 50+ years, with the lowest year-round energy use of any heat-pump type. Geothermal is a distinct sub-category of heat-pump installation, suited to homes with the lot space (or drilling access) and a long enough time horizon to earn back the upfront premium.
The federal incentive picture changed sharply for 2026. The Section 25D Residential Clean Energy Credit covered geothermal heat pumps at 30% of cost with no dollar cap, but the One Big Beautiful Bill Act of 2025 terminated it for property placed in service after December 31, 2025. A geothermal system switched on in 2025 still earns the credit on that year's return; the same project completed in 2026 earns no federal credit. Income-qualified buyers may still reach the state-run HEAR rebate. Confirm current incentives before counting any tax benefit into a geothermal budget.