Section 25D — the Residential Clean Energy Credit — was the federal income tax credit that made a geothermal (ground-source) heat pump dramatically cheaper. Internal Revenue Code Section 25D dates to the Energy Policy Act of 2005 and covers residential renewable-energy property; the Inflation Reduction Act of 2022 raised it to a flat 30% of cost and extended it. For heat-pump buyers its relevance is specific: it applied to ground-source geothermal heat pumps, not air-source systems, which fell under the separate, capped Section 25C credit.
The defining feature was that 25D had no dollar cap. Where 25C limited an air-source heat pump to a $2,000 credit, 25D paid 30% of the entire installed cost of a geothermal system — trenching or drilling, ground loop, and indoor equipment included. On a $30,000 ground-source install that was roughly $9,000 back, which is a large part of why geothermal's high upfront cost could pencil out. The heat pump had to meet the ENERGY STAR requirements in effect when installed, the credit was non-refundable with unused amounts carrying forward, and there was no income limit.
The One Big Beautiful Bill Act of 2025 (OBBBA, Public Law 119-21), signed July 4, 2025, repealed Section 25D for property placed in service after December 31, 2025. The placed-in-service date controls: a geothermal system finished on or before December 31, 2025 still qualifies under the prior rules and is claimed on the 2025 return, while the same system completed in January 2026 earns no federal credit. OBBBA left the carryforward mechanics intact, so a household with a qualifying 2025 expenditure can still carry unused credit forward. Before OBBBA, the Inflation Reduction Act had set 25D at 30% through 2032 with a step-down through 2034; OBBBA ended it years early, on the same date as the companion 25C credit.
For a 2026 buyer weighing a geothermal heat pump, the practical effect is the loss of a 30% federal offset that could exceed $7,000 on a large ground-source project — a far bigger number than the air-source credit that also expired. State and utility incentives now carry that load: the income-qualified, state-run HEAR rebate (up to $8,000) remains where a state has launched it, and utility rebates continue for qualifying equipment, but none fully replaces an uncapped 30% credit on a high-cost system. Because eligibility turned on the placed-in-service date and the carry-forward mechanics are specific, consult a tax professional before relying on any credit for a geothermal system installed near the December 31, 2025 boundary.