Section 25D — the Residential Clean Energy Credit — was a federal income tax credit for residential renewable-energy property. Internal Revenue Code Section 25D (26 U.S.C. §25D) dates to the Energy Policy Act of 2005 and originally covered solar electric, solar water heating, and fuel cells. The Inflation Reduction Act of 2022 raised the credit to a flat 30% of cost, extended it, and added battery storage of at least 3 kilowatt-hours beginning in 2023. For HVAC buyers, the credit's relevance is the geothermal (ground-source) heat pump, which qualified alongside solar and wind. The Internal Revenue Service administered the credit for the U.S. Treasury, and homeowners claimed it on Form 5695.
Section 25D paid 30% of the total installed cost of qualifying property, with no annual or lifetime dollar cap for most equipment — the lone exception was fuel-cell property, capped at $500 per half kilowatt of capacity. A homeowner who installed a $24,000 ground-source heat pump could claim roughly $7,200, far more than the $2,000 ceiling that the separate Section 25C credit placed on air-source heat pumps. Geothermal heat pumps had to meet the ENERGY STAR requirements in effect when installed. The credit was non-refundable, so it could only offset tax actually owed, but any unused amount carried forward to later tax years rather than being lost. Unlike many rebate programs, 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The One Big Beautiful Bill Act of 2025 (OBBBA, Public Law 119-21), signed July 4, 2025, repealed Section 25D for property placed in service after December 31, 2025. Under Section 25D's own rules, an expenditure is treated as made when the original installation is completed, so the placed-in-service date — not the contract or purchase 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; the same system completed in January 2026 earns no federal credit. OBBBA left the credit's carryforward mechanics intact, so a household that made a qualifying 2025 expenditure can still carry unused credit into future years. This is the same legislation that repealed the companion Section 25C credit on the same date. Before OBBBA, the Inflation Reduction Act had set Section 25D at 30% through 2032, stepping down to 26% in 2033 and 22% in 2034; OBBBA ended it years early.
For a 2026 buyer weighing a geothermal heat pump or a solar-plus-storage project, the practical effect is the loss of a 30% federal offset that, on a large ground-source install, could exceed $7,000 — a far bigger number than the air-source heat-pump credit that also expired. State and utility incentives now carry that load. The state-administered Home Energy Rebates funded by the Inflation Reduction Act remain available where a state has launched them, and utility rebates continue for qualifying equipment. None of these fully replaces an uncapped 30% credit on a high-cost renewable system. Because eligibility turned on the placed-in-service date and the non-refundable, carry-forward mechanics are specific, consult a tax professional for current eligibility before relying on any credit for a system installed near the December 31, 2025 boundary.