A geothermal well finished after year-end missed a 30% tax credit worth as much as $10,500, wiping out the expected refund

A drilling rig is shown in a suburban side yard, with its mast aimed at a narrow opening in the frozen ground.

Nearby, coils of plastic pipe sit ready to be lowered into the borehole. From the porch, the homeowner had been counting on a refund expected to cover almost a third of the cost.

But once the calendar changed, that calculation collapsed.

The difference had nothing to do with the hole itself. It came down to one date buried in federal tax law.

How one word, “completed,” determined the outcome

The law did not focus on when the homeowner signed the contract, paid a deposit or saw drilling begin. It hinged on a single moment: when the geothermal system installation was completed. Under the statute, an expense for geothermal property is treated as incurred on the date the original installation is finished, not the date payment was made. If installation is completed after December 31, 2025, the expense is treated as incurred after that date, which eliminates the credit altogether.

That technical distinction carried real financial consequences. A geothermal system completed before year-end qualified in full. The same system, with the same contractor and the same invoice, but finished two weeks later, qualified for nothing. Through 2025, geothermal projects were eligible for a 30% Residential Clean Energy Credit with no cap, covering the full system cost including drilling and loop installation — a $10,500 credit on a $35,000 system.

In other words, the completion date was the trigger, not the purchase date. Permitting delays, delayed equipment deliveries or weather-related setbacks could quietly shift a project from one tax outcome to another.

A loop field built around a deadline few people noticed

A typical vertical system may require three to five boreholes, with roughly 300 to 500 feet of piping per ton of HVAC capacity, drilled 100 to 400 feet into a yard. That portion alone can cost tens of thousands of dollars before the indoor unit is even installed.

The overall bill was already substantial. A standard residential geothermal installation can range from $18,000 to $45,000, depending on system type, home size, local geology and regional labor costs. For many households, the only reason that price seemed manageable was the expectation that a federal check would erase nearly a third of it.

That is why the cutoff mattered so much. Drilling crews were booked solid through the fall, and winter ground conditions, along with a holiday rush to finish before the deadline, left little room for delay. Industry guidance issued after the law changed warned homeowners that simply having equipment installed was not enough; the work had to be fully finished before the cutoff to qualify.

The law behind the cutoff, according to IRS guidance

The deadline traces to the One Big Beautiful Bill Act, which was signed in mid-2025 and advanced the end of two residential energy credits that had previously been expected to last longer. The 2025 instructions for IRS Form 5695 explain how to claim the credit on this year’s return.

Those instructions also show that the rate itself did not phase down before disappearing. The residential energy efficient property credit is now the residential clean energy credit, and the credit rate for property placed in service from 2022 through 2025 is 30%. There was no gradual reduction, only the full rate followed by a hard cutoff.

Tax guidance published after the law changed has been consistent on that point. One geothermal tax credit guide states the credit “is not available for any property placed in service after December 31, 2025.” Early coverage of the law sometimes caused confusion because the language changed between House and Senate drafts before the final bill locked in the December 31 cutoff, and that widespread confusion likely cost some homeowners money if they assumed they had more time.

Why the surprise still matters, even for those who finished in time

Even homeowners who met the deadline are not completely free of complications. The credit is non-refundable, meaning it can only reduce federal income tax owed; it does not produce a refund check, and any unused amount can be carried forward to later tax years. A retiree or a household with a modest tax bill may need several years to use the full credit from one project.

That carryforward rule matters because drilling is usually the biggest expense in a geothermal project. It often makes up 40% to 60% of the total cost, with a typical U.S. home spending $8,000 to $22,000 on drilling alone. A credit that cannot be used all at once lengthens the payback period even when the system does qualify.

There is also a separate complication for shoppers entering the market now. Readers who followed GCN’s reporting on a geothermal loop lease model already know that financing structure comes with its own resale disclosure rules, separate from this federal credit. And the per-foot drilling costs that make shared systems appealing, discussed in GCN’s coverage of a backyard geothermal loop, do not become cheaper simply because the incentive has vanished. Commercial buyers did not face the same loss, since commercial geothermal heat pump property remains covered under the Section 48 Investment Tax Credit, which was not ended by the law.

What this means for anyone budgeting a system now

None of this means geothermal is a poor technology. Its efficiency advantages remain, and decades of operating savings can still accrue to a properly sized and correctly drilled system, regardless of changes to the tax code.

But the sales pitch many homeowners heard — reducing a $35,000 project to something closer to $25,000 through a federal credit — no longer applies to projects that begin now. Any gap has to be filled by state rebates, utility programs or a longer payback period.

The broader lesson is not about geothermal’s value. It is about checking the placed-in-service date on any contract before assuming an incentive will still exist when the crew finishes the job.