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Guide
Geothermal heating and cooling: how it works, costs and whether it fits
Geothermal systems heat and cool a home by trading heat with the ground instead of the outdoor air. They cost more to install and last a long time. Here is how they work and how to judge whether one suits your home.
The short answer
A geothermal heat pump moves heat between your home and the ground through buried or submerged pipe loops. The U.S. Department of Energy (DOE) says it is quieter, more efficient and longer-lasting than an air-source heat pump, but the installed price can be several times that of an air-source system of the same capacity.
The federal 30% tax credit for home geothermal ended for installations completed after December 31, 2025. Check state and utility rebates before you sign.
What geothermal heating and cooling is
A geothermal heat pump (also called a ground-source heat pump) is a heat pump that uses the earth, or a body of water, as its heat source in winter and its heat sink in summer. It does not burn fuel and it does not tap volcanic heat. It uses the ordinary, steady warmth of the ground a short way below your yard.
ENERGY STAR describes these systems as using the earth’s natural heat to provide heating, cooling and often water heating. One system does all of that, through ductwork or through water-based heating such as radiant floors, depending on the design.
How it works
DOE explains that a few feet below the surface the ground stays at a relatively constant temperature year-round – roughly 40 to 70°F (4.5 to 21°C), depending on where you live. That ground is warmer than the outdoor air in winter and cooler than it in summer.
- The loop. Pipe buried in the yard (or sunk in a pond, or fed by a well) carries water or an antifreeze mix.
- Winter. The fluid picks up heat from the ground. The indoor heat pump concentrates that heat with refrigerant and a compressor and delivers it to the house.
- Summer. The process runs in reverse. Heat pulled out of the house goes into the cooler ground.
Because the ground is a milder partner than the air on the coldest and hottest days, the equipment does not have to work as hard. That is where the efficiency comes from. The general workings of heat pumps are covered in our heat pump guide.
The four loop types
DOE lists four kinds of loop. Three – horizontal, vertical and pond/lake – are closed loops: the same fluid circulates in sealed pipe. The fourth is an open loop, which uses well or surface water directly.
| Loop type | How it works | When it fits | What to know |
|---|---|---|---|
| Horizontal (closed) | Pipe laid in trenches dug across the yard. DOE says the trenches are at least four feet deep. | Homes with enough open land and soil that can be dug. | Needs the most yard space. The trenching disturbs landscaping, so new builds and big lots suit it. |
| Vertical (closed) | Pipe set in deep holes drilled into the ground, joined into one loop. | DOE says vertical loops are used for larger systems or where land is limited. | Needs a drilling rig, so it usually costs more than trenching, but uses far less land. Ask who does the drilling and how the holes are sealed. |
| Pond/lake (closed) | Coils of pipe sunk in a body of water. DOE says they sit at least eight feet under the surface to prevent freezing. | Properties with a suitable pond or lake close to the house. | The water body needs enough size and depth. Local rules and the owner of the water may have a say. |
| Open loop | Well or surface water is circulated directly through the heat pump, then returned to the ground or discharged. | Sites with an ample supply of clean groundwater. | Water quality and quantity matter, and well and discharge rules vary by state and county. Ask what permits apply. |
Which loop suits a site is not a matter of taste. DOE names four deciding factors: climate, soil conditions, available land and local installation costs. Rocky ground can make trenching hard, a small lot can rule out horizontal loops, and the price of drilling differs from area to area. A good designer looks at your site before recommending a loop.
How efficient is geothermal?
DOE says that, compared with air-source heat pumps, geothermal systems are quieter, more efficient, last longer, need little maintenance and do not rely on the temperature of the outside air. DOE’s 2011 Guide to Geothermal Heat Pumps put the energy saving at about 25% to 50% less energy use than air-source heat pump systems.
ENERGY STAR says products certified under its current geothermal specification will be, on average, over 45% more energy efficient than standard options. Geothermal efficiency is usually stated as COP for heating and EER for cooling. Our efficiency ratings guide explains how those numbers work.
Real savings depend on your climate, your energy prices, the fuel you are replacing and how well the system is designed and installed.
How long does a geothermal system last?
DOE estimates system life at up to 24 years for the inside components and 50 years or more for the ground loop. In practice the heat pump inside the house is the part you may replace one day; a well-installed loop is meant to outlast it and can be reused with new equipment.
That split matters when you compare quotes. Ask what warranty covers the loop pipe and its joints, and what covers the indoor unit, because they are often different.
What geothermal costs
We do not publish prices, because they change and vary widely by site. What DOE says: the installation price of a geothermal system can be several times that of an air-source system of the same heating and cooling capacity. The loop – trenching, drilling or well work – is a large share of that.
DOE also says the extra cost may be returned in energy savings in 5 to 10 years, depending on the cost of energy and the incentives available. Your own payback could be shorter or longer.
- Ask at least two companies for written quotes that separate the loop from the indoor equipment.
- Ask each company for its estimate of yearly operating cost compared with your current system, and what assumptions it used.
- Check what incentives apply where you live (see the tax credit section below) before you compare totals.
Hot water and the desuperheater
DOE says geothermal heat pumps can heat, cool and, if so equipped, supply the house with hot water. The part that does this is a desuperheater: a small heat exchanger that sends some of the heat pump’s heat to your water heater tank.
A DOE handout explains that in summer, heat removed from the house while cooling heats water at no extra cost, and that in winter water heating costs are reduced by about half. Ask whether a desuperheater is included or optional, and how it connects to your existing water heater.
Is there still a federal tax credit for geothermal?
No, not for new installations. The federal Residential Clean Energy Credit (Section 25D) gave homeowners 30% of the cost of qualifying property, and geothermal heat pumps were on the list. The IRS says it was available for property installed from 2022 through December 31, 2025. A 2025 federal law, Public Law 119-21, ended it after 2025.
What the IRS says, in its own words:
- “The credit will not be allowed for any expenditures made after December 31, 2025.”
- “An expenditure with respect to an item is treated as made when the original installation of the item is completed.”
- “If installation is completed after December 31, 2025, the expenditure will be treated as made after December 31, 2025” – so paying a deposit or the full price in 2025 does not qualify if the installation was finished in 2026.
For systems completed by December 31, 2025, the credit is claimed for the tax year the property was installed, not merely purchased, and the geothermal heat pump had to meet the ENERGY STAR requirements in effect when it was bought. Ask a tax professional about your own return.
As of October 2026 there is no replacement federal tax credit for installing geothermal in an existing home. Other help may still exist:
- Home Energy Rebates. DOE says these state-run rebates are now available in select states. Check your state on the map at energy.gov/save/rebates.
- Your state energy office. DOE tells homeowners to contact their State or Territory Energy Office for status and eligibility.
- Your electric or gas utility. Many run their own heat pump or geothermal programs. Check before work starts, since some require pre-approval.
Be wary of any sales pitch that still quotes a 30% federal credit for a new home installation.
Geothermal vs air-source heat pump
Both are heat pumps. The difference is where the heat comes from and goes to.
| Geothermal | Air-source | |
|---|---|---|
| Heat source | The ground or water, at a steady temperature | Outdoor air, which swings with the weather |
| Efficiency | DOE: about 25% to 50% less energy than air-source (2011 guide) | Output and efficiency fall as outdoor air gets colder |
| Outdoor unit | None; the loop is underground or underwater | A fan unit outside that needs clearance and makes some noise |
| Installed price | DOE: can be several times an air-source system of the same capacity | Lower; no loop to install |
| Lifespan | DOE: up to 24 years inside, 50+ years for the loop | Shorter; ask the maker and installer |
| Site needs | Land for trenches, room for a drilling rig, a pond or a well | A spot near the house for the outdoor unit |
Geothermal tends to make the most sense where you plan to stay a long time, the site suits a loop, and heating or cooling loads are large. Cold-climate air-source models and dual-fuel systems are the usual alternatives – see the heat pump guide.
Questions to ask a geothermal installer
- Load calculation. Will you do a load calculation for my home? Loop length and equipment size both depend on it – see our sizing guide. An oversized loop wastes money; an undersized one cannot keep up.
- Loop design. Which loop type do you recommend for my site, and why? How long is the loop, and what assumptions about my soil did you use?
- Who drills or digs. Is the loop installed by your own crew or a subcontractor? Is the driller licensed where required?
- Permits. Which permits are needed – a mechanical permit, well or boring permits, water discharge for open loops – and who gets them?
- Warranty. What covers the loop pipe and its joints, and for how long? What covers the indoor heat pump, parts and labor separately?
- Ducts and distribution. Can my existing ducts carry the airflow the new system needs, or are changes included?
- Hot water. Is a desuperheater included?
- Incentives. Which state or utility programs have you used for recent jobs, and who handles the paperwork?
More general hiring advice is in how to hire an HVAC company.
Finding geothermal installers near you
Not every HVAC company installs geothermal, and many that do partner with a drilling company. Our city pages list HVAC companies A to Z, and note the companies whose own websites mention geothermal work. Treat that as a starting point: confirm with each company that it designs and installs ground loops, ask for recent local geothermal jobs, and check its license.
Sources
- DOE Energy Saver: Geothermal Heat Pumps (checked October 2026)
- DOE: Guide to Geothermal Heat Pumps (DOE/EE-0385, February 2011, PDF) (checked October 2026)
- DOE: About Geothermal Heat Pumps handout (2017, PDF) (checked October 2026)
- ENERGY STAR: Geothermal Heat Pumps (checked October 2026)
- IRS: FAQs on the modification of sections 25C, 25D and others under Public Law 119-21 (FS-2025-05) (checked October 2026)
- IRS: Residential Clean Energy Credit (checked October 2026)
- DOE: Home Energy Rebates (checked October 2026)
- DOE SCEP: Home Energy Rebate Programs (checked October 2026)
Find an HVAC company near you
Local heating and cooling companies by metro area, listed A to Z with phone numbers, services and emergency options.
Questions
How much does geothermal heating and cooling cost?
It depends heavily on the site and the loop type, so ask for written quotes. DOE says the installation price can be several times that of an air-source system of the same capacity, and that the extra cost may be returned in energy savings in 5 to 10 years, depending on energy prices and incentives.
Is geothermal worth it?
It can be when you plan to stay in the home for many years, the site suits a loop and your heating and cooling needs are large. DOE says geothermal is quieter, more efficient and longer-lasting than air-source heat pumps. The trade-off is a much higher upfront price, so compare written quotes and local incentives against an air-source option.
How long does a geothermal system last?
DOE estimates up to 24 years for the inside components and 50 years or more for the ground loop. When the indoor heat pump wears out, a sound loop can usually be kept.
Is there still a tax credit for geothermal in 2026?
Not a federal one for new installations. The IRS says the 30% Residential Clean Energy Credit is not allowed for expenditures made after December 31, 2025, and an expenditure counts as made when the installation is completed. As of October 2026 there is no replacement federal credit. Check energy.gov/save/rebates, your state energy office and your utility for rebates.
How deep are geothermal loops?
It depends on the type. DOE says horizontal loops go in trenches at least four feet deep, and pond or lake loops sit at least eight feet under the water surface. Vertical loops are drilled much deeper; the depth and number of holes come from the home’s load and the ground conditions.
Related guides
Updated October 2026 by the Heating and Cooling editorial team. General information for homeowners, not professional advice – rules and equipment differ. When gas, carbon monoxide, electricity or anyone’s safety is involved, call 911 or your utility. How we write our guides · HVAC glossary