What Happens to Geothermal Tax Credits After 2025? Understanding the Shift from Section 48 to Section 48E
As the clean energy tax landscape evolves under the Inflation Reduction Act (IRA), many developers and investors are preparing for the transition from Section 48 to the new technology neutral Section 48E. While the general framework of the Investment Tax Credit (ITC) remains intact, one important detail is catching developers by surprise: the treatment of geothermal technologies, particularly geothermal heat pumps, changes significantly starting in 2025.
What’s Changing?
Prior to 2025, geothermal systems are eligible under the traditional ITC framework outlined in Section 48. This includes both:
- Geothermal electric generation facilities such as binary or flash steam plants
- Geothermal heat pump systems, typically used in commercial and residential buildings for heating and cooling
Beginning January 1, 2025, all newly placed in service projects will fall under the rules of Section 48E, which was created by the IRA to modernize and simplify clean energy incentives. But Section 48E introduces a key constraint: it only applies to projects that generate electricity and have net zero greenhouse gas emissions.
So, What Does This Mean for Geothermal?
| Technology | Eligible Under Section 48 (Before 2025) |
Eligible Under Section 48E (2025 and After) |
|---|---|---|
| Geothermal Electric Generation | Yes | Yes (if net zero emissions) |
| Geothermal Heat Pumps | Yes | No |
Geothermal electric generation technologies still qualify under Section 48E, assuming they meet emissions and operational requirements. However, geothermal heat pumps are not eligible under the Investment Tax Credit starting in 2025 because they do not generate electricity.
Why It Matters
This change has practical and financial implications:
- Projects placed in service before 2025 can still use the traditional Section 48 ITC, including geothermal heat pumps.
- Projects placed in service in 2025 or later must meet the Section 48E requirements, which excludes geothermal heat pumps from eligibility.
A Note on Future Changes
The proposed budget reconciliation bill known as the “One Big, Beautiful Bill” has signaled that further changes may be on the horizon for both Section 48 and Section 48E. While the bill includes several provisions that could affect the structure or availability of ITC benefits down the line, none of those changes are law yet.
For now, we are focused on what is current and viable. Geothermal projects still have a clear path to tax credits, but the window is closing for certain systems.
Planning Opportunities
If you are considering installing or commissioning a geothermal heat pump system, this is the time to act. Systems placed in service by December 31, 2024, remain eligible for the 30 percent credit under Section 48 and may still benefit from certain bonus credits depending on project type.
For developers of geothermal power projects, Section 48E still provides a viable incentive path, especially if domestic content, energy community, or low income bonuses can be layered on.
Final Thoughts
While the shift to Section 48E is meant to streamline and expand the clean energy incentive program, it is not without tradeoffs. For geothermal technologies, the change preserves support for power generation but eliminates tax credit eligibility for heat pump systems starting in 2025.
If you are not sure how this change impacts your upcoming projects, or if you are exploring ways to qualify under the current rules, reach out to our team. We can help you evaluate your timeline, eligibility, and potential tax savings before the deadline hits.
