Geothermal Tax Credits and Rebates in Iowa: What Changed for 2026

Last updated: September 2026.

This is general information, not tax advice - consult a tax professional about your specific situation.

What Happened to the 30% Federal Geothermal Tax Credit

Through 2025, the federal Residential Clean Energy Credit, defined in Internal Revenue Code Section 25D, was the single largest incentive for going geothermal: 30% of the qualified cost of an ENERGY STAR ground-source (also called ground-loop or closed-loop) heat pump, with no dollar cap and no income limit, covering the equipment, the buried ground-loop piping, and the installation labor. Earlier law had that 30% running through 2032 with step-downs in 2033 and 2034. That schedule no longer applies.

The federal budget law signed on July 4, 2025 moved the end date to December 31, 2025. The IRS instructions for Form 5695 now state that you cannot claim residential clean energy credits for expenditures made after that date, and that a cost is treated as made when the original installation is completed. The date that matters is the day the system is finished and running, not the day you signed the contract or paid a deposit. A geothermal system completed in January 2026 or later earns no federal credit.

If your system was completed in 2025, nothing changes for you. The credit is claimed on Form 5695 with your 2025 federal return, it reduces the tax you owe dollar for dollar, and because it is non-refundable, any portion you cannot use in 2025 carries forward to 2026 and later years. Keep the itemized invoice and the manufacturer's certification statement with your return. When you are ready to move forward on a new system, our geothermal system installation in Des Moines includes the itemized documentation you will need for the MidAmerican discount and your records.

Iowa Geothermal Incentives and MidAmerican's 2026 Instant Discount

Iowa's own Geothermal Heat Pump Tax Credit, which paid 20% of the federal credit, was repealed by the 2022 state tax law for installations after December 31, 2023. Systems installed from 2019 through 2023 were eligible, and the application deadline was May 1 following the year of installation, so that window closed on May 1, 2024. There is no Iowa state geothermal credit for a 2026 install, and the federally funded Iowa HEAR and HOMES rebate programs had not launched as of September 2026, so we do not count them in a quote.

The incentive that is live in 2026 is the Instant Discount from MidAmerican Energy, the utility for most of the Des Moines metro. For 2026, MidAmerican lists $900 to $1,200 per geothermal heat pump and $113 for a desuperheater, for equipment purchased, installed and operating between January 1 and December 31, 2026. Instant Discounts are only available when the equipment is purchased through a participating Instant Discounts provider, they come off the price rather than arriving as a check later, and they cannot be combined with MidAmerican's other rebate programs. Ask whether your installer is enrolled before you sign. If your home is served by Alliant Energy or a rural electric cooperative, rebates on geothermal exist but we have not verified the 2026 amounts, so call the utility before you count on a figure. If you already run geothermal, keeping it efficient protects those savings; our geothermal maintenance and geothermal repair services keep loop and heat pump performance where it should be.

Who Can Still Claim the Federal Credit (2025 Installations Only)

The federal geothermal credit still applies to systems completed on or before December 31, 2025. If that is you, here is what determines eligibility and what you can include:

• Completion date. The original installation must have been completed by December 31, 2025. A contract signed in 2025 with the work finished in 2026 does not qualify.
• Home ownership and use. The system must be installed at a home you own and use as a residence. Both your primary residence and a secondary home you live in can qualify. Rental property you do not live in generally does not.
• New construction and existing homes. The credit applies whether you are retrofitting an existing house or building new, as long as the equipment meets the requirements.
• ENERGY STAR equipment. The geothermal heat pump must meet the ENERGY STAR requirements in effect when it is placed in service.
• Eligible costs. The heat pump, the ground-loop piping, and the labor to install them all count toward the 30% credit.
• Enough tax liability. Because the credit is non-refundable, you need federal tax owed to apply it against, though any unused portion carries forward.
• Documentation to keep. Hold onto your itemized invoice and the manufacturer's certification statement showing the equipment qualifies.

How to Claim the Credit for a 2025 Installation (Step by Step)

For a system completed in 2025, claiming the credit is a matter of good record-keeping and one federal form:

1. Save your paperwork. Keep the itemized installation invoice and the manufacturer's ENERGY STAR certification statement for the equipment.
2. File IRS Form 5695. Complete Form 5695 (Residential Energy Credits) with your 2025 federal return, the tax year the system was placed in service.
3. Apply the credit. The calculated credit reduces the federal tax you owe for that year.
4. Carry forward any excess. If the credit is larger than your 2025 tax liability, Form 5695 carries the unused amount forward to your 2026 return and beyond.
5. Skip the Iowa form. The Iowa geothermal credit ended for installations after 2023 and its application window has closed, so there is no state form to file for a 2025 or 2026 system.

Obsidian Heating and Cooling provides the invoice and equipment documentation you need; we always recommend confirming the details with your tax professional.

Is Geothermal Worth It in Iowa?

Geothermal has a higher upfront cost than a standard furnace-and-AC swap, and with the federal credit gone, the MidAmerican Instant Discount and the operating savings are what bring the net number down and shorten the payback. The efficiency case is strong in Iowa specifically: the ground a few feet down holds a stable temperature year-round, so a ground-source heat pump exchanges heat with the earth instead of fighting outdoor air that swings from summer heat to sub-zero winter. That stability is why geothermal delivers consistent comfort and low operating costs across our four seasons.

The equipment lasts, too. Ground loops are buried and protected, and the heat pump itself runs for decades with routine care, so the savings compound over a long service life. The honest way to know whether it pencils out for your home is a real assessment - your loads, your lot, your loop options, and the incentives active that year. We offer a free in-home assessment with no diagnostic fee, and every new install from Obsidian Heating and Cooling includes a full year of free maintenance and our 100% satisfaction guarantee. Explore the details of our geothermal system installation in Des Moines, or spread the cost with flexible financing through our approved partners.