Maryland geothermal tax incentives let a homeowner stack a federal credit worth 30% of total project costs, a $3,000 state grant, a full exemption from the 6% state sales tax on equipment, and two separate property tax protections. A qualifying system can also earn Renewable Energy Credits that pay out either annually or as a lump sum. On a $25,000 installation, the credits and grant alone can wipe out more than 40% of the cost.
The Federal 30% Credit
The Residential Clean Energy Credit under 26 U.S.C. § 25D equals 30% of what you spend on a qualifying geothermal heat pump.1Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit The 30% applies to equipment, labor for on-site preparation and assembly, and the piping or wiring that connects the system to your home.2Internal Revenue Service. Residential Clean Energy Credit A $25,000 project produces a $7,500 credit.
A 2025 amendment stripped out the phase-down that would have cut the credit to 26% in 2033 and 22% in 2034. The 30% rate now applies to any system placed in service after December 31, 2021, with no expiration date written into the statute.1Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit Congress can revisit that at any time, but the earlier countdown is gone.
Your equipment has to meet the Energy Star requirements in effect when you buy it. The credit is nonrefundable, so it can zero out your federal tax bill but will not generate a refund on its own. Anything you can’t use in the installation year carries forward to the next tax year, and keeps carrying forward until it’s used up.1Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
The credit isn’t limited to a primary residence. A second home in the United States that you live in part-time qualifies too, as long as you don’t rent it out. The IRS Form 5695 instructions state plainly that “the home doesn’t have to be your main home.”3Internal Revenue Service. Instructions for Form 5695 (2025) Landlords and non-resident owners are not eligible.2Internal Revenue Service. Residential Clean Energy Credit
The $3,000 Maryland Geothermal Rebate
The Maryland Energy Administration pays a $3,000 grant for installing a new geothermal heating and cooling system.4Maryland Energy Administration. Geothermal Rebate Program It’s a direct payment, not a tax deduction, so you don’t wait for tax season. Single-family detached homes and single-family townhomes qualify. Multi-family properties do not.
Timing matters here. FY2026 is the final year of the program. MEA budgeted $150,000 for rebates, and funding requests have already exceeded that. The application portal is closed to new submissions while the agency processes its backlog, though MEA has said the portal may reopen if money remains.4Maryland Energy Administration. Geothermal Rebate Program If you’re reading this after February 2026, the program has almost certainly ended. Check the MEA page for the current status before you count on this money.
Sales Tax Exemption on Equipment
Maryland exempts geothermal equipment from the 6% state sales and use tax. The statute defines geothermal equipment as anything that uses ground loop technology to heat and cool a structure.5Maryland General Assembly. Maryland Code Tax-General 11-230 The exemption is applied at the point of sale, so the tax should never appear on your invoice. On $15,000 of equipment, that’s $900 you don’t pay.
Two Property Tax Protections
Maryland gives you two layers of property tax protection, and they do different jobs. It helps to know what each one actually blocks your assessor from doing.
Tax-Property § 7-242 prevents the added value of a geothermal device from being counted in your property’s assessed value.6Maryland General Assembly. Maryland Code Tax-Property 7-242 If the system boosts your home’s market value, the assessor can’t translate that into a higher tax bill. This protection runs for the life of the system.
Tax-Property § 8-240 caps the assessed value of the system itself. If the building has no conventional heating and cooling system, the geothermal system is assessed at no more than what a conventional system would be worth. If the geothermal was installed alongside an existing conventional system, the combined setup is still assessed at no more than the value of the conventional system alone.7Maryland General Assembly. Maryland Code Tax-Property 8-240 You’re never taxed on the premium you paid for going geothermal.
Renewable Energy Credits
Maryland’s Renewable Portfolio Standard treats geothermal heating and cooling as a Tier 1 renewable source. Under Utilities Article § 7-704, a geothermal owner can earn renewable energy credits based on the energy the system produces, converted from BTUs to kilowatt-hours.8Maryland General Assembly. Maryland Code Utilities 7-704 You qualify if you own and operate the system, lease and operate it, or contract with a third party who owns and operates it.
A 2021 law created a dedicated carve-out within Tier 1 for geothermal systems installed after 2022, rising to 1.0% by 2028. That carve-out creates market demand for geothermal RECs, which is what gives them cash value. The number of credits your system earns each year depends on its size, the heating system it replaced, and your home’s energy profile.
To turn credits into money, you register through a REC aggregator who enrolls your system with PJM GATS, the regional tracking system. Some aggregators pay a lump sum upfront representing 25 years of projected generation. Others pay annually. Registration generally takes four to six weeks after installation and final inspection. REC income is separate from the federal credit and state grant, and stacks on top of both.
Clean Energy Advantage Loan
The Maryland Clean Energy Center runs the Clean Energy Advantage Loan Program, which offers 0% financing for 24 months and reduced interest rates after that for residential energy improvements, including geothermal. It’s open to Maryland residents regardless of income.9Maryland Clean Energy Center. Maryland Clean Energy Advantage Loan Program
As of early 2026, the program is waiting on Maryland Public Service Commission approval to extend into the 2026 calendar year with additional funding.9Maryland Clean Energy Center. Maryland Clean Energy Advantage Loan Program Confirm the program’s status before you lock in financing plans around it.
How to Claim Each Incentive
Federal Credit
Claim the federal credit by filing IRS Form 5695 with your annual tax return. Enter the total paid for qualified geothermal heat pump property on Line 4, including equipment and labor for on-site preparation, assembly, installation, and the piping or wiring connecting the system to the home.3Internal Revenue Service. Instructions for Form 5695 (2025)
For documentation, you can rely on the manufacturer’s written certification that the equipment qualifies. You don’t send that certification with your return, but keep it in your records in case of an audit.3Internal Revenue Service. Instructions for Form 5695 (2025) The IRS also recommends holding onto purchase receipts and installation records, since you’ll need them to substantiate your adjusted basis if you sell the home later.10Internal Revenue Service. How to Claim a Residential Clean Energy Tax Credit
State Grant
The MEA rebate is submitted through the agency’s online portal. You’ll need the system capacity in tons, your contractor’s license number, and proof of residency such as a utility bill. With funding oversubscribed in the program’s final year, speed matters more than paperwork polish. If the portal reopens, submit immediately.4Maryland Energy Administration. Geothermal Rebate Program
Property Tax Exemption
File the required paperwork with the local assessment office in the county where your property is located.11Maryland Department of Assessments and Taxation. Real Property Exemptions After filing, you can confirm the exemption on your record through the Maryland Department of Assessments and Taxation’s online database.
What the Stack Looks Like on a $25,000 Project
Residential geothermal installations typically run $20,000 to $30,000 or more, depending on lot conditions, system size, and loop type. On a $25,000 project the incentives line up like this:
- Sales tax exemption: around $900 saved on roughly $15,000 of equipment, with the exact number depending on your equipment-to-labor ratio.
- Federal 30% credit: $7,500 off your federal tax bill, with any unused portion carried forward.
- State grant: $3,000 direct payment, if program funding is still available.
- Renewable Energy Credits: ongoing annual income, or a lump sum upfront, depending on how you choose to monetize them.
- Property tax protection: no increase in your assessed value for the life of the system.
The federal credit and state grant alone cover 40% or more of a typical project. Add REC income on top and the payback period shortens enough that geothermal starts to read less like a premium upgrade and more like a straightforward financial decision.