What a $1,000,000 Geothermal Tax Credit Is Actually Worth

An underwriting study of the real cost of claiming and selling the commercial geothermal ITC.

Prepared by Energy Credit Consulting, June 2026. Figures are market-typical ranges as of mid-2026, not tax advice. Every project is different. Confirm your own numbers with counsel and a qualified tax preparer before you underwrite.

The One-Line Version

A vendor tells you your geothermal system earns a "$1,000,000 tax credit." That is the sticker price. After the study, the legal work, the filing prep, the broker, and the discount your buyer demands, a clean transfer at the top of today's market puts about $782,000 of cash in your pocket. Count the depreciation you give up by claiming the credit, and the real after-tax value lands closer to $637,000, about 64 cents on the dollar. And that is the good outcome, where prevailing wage was handled correctly and nothing gets recaptured.

None of this means the credit is a poor deal. It is a strong one. The point is to underwrite the number you will actually receive, not the number on the brochure.

1. What a "$1M Credit" Actually Implies

The commercial geothermal heat pump credit lives in Section 48. As of mid-2026 that is worth knowing on its own. When the One Big Beautiful Bill Act (P.L. 119-21, signed July 4, 2025) cut back most renewable credits and pushed solar and wind toward early sunsets, geothermal heat pumps kept their place in Section 48 at the full rate through 2032. It is one of the few technologies that came through that bill with a long runway intact.

The credit rate is not automatic:

Phase-down for geothermal heat pumps: full rate through 2032, then roughly 26% in 2033, 22% in 2034, and zero for projects that begin construction in 2035 or later.

To generate a $1,000,000 credit at the 30% rate, you are installing about $3.33 million of qualified geothermal property. That single fact drives most of what follows. A system that large is expensive to document, near the line on prevailing-wage rules, and produces a credit big enough to sell but small enough that the transfer market treats you as a minnow.

2. The Cash Waterfall: Gross Credit to Money in Hand

This is the part vendors skip. Here is every cost between the face value of the credit and the cash you keep, for a first-time seller moving a single $1,000,000 credit.

a) Eligibility or cost-segregation study. Budget about $10,000 to $20,000. You cannot claim the credit on the whole invoice. Only property that is an integral part of the geothermal system qualifies. Land, most site work, and non-qualifying scope come out. An engineering-based study separates eligible basis from ineligible cost, and it is what stands up if the IRS or your buyer's diligence team asks how you got to $3.33 million. For a system this size, budget the middle of that range.

b) Legal. Figure about $20,000 to $35,000. Someone has to paper the transfer: the transfer election agreement, representations and warranties, the indemnity, and the pre-filing registration mechanics. The seller pays its own counsel. Buyers often reimburse a slice of this, but for a deal this small the reimbursement cap is small too.

c) CPA and filing prep. About $5,000 to $10,000. The IRS pre-filing registration portal itself is free. There is no government filing fee, which surprises people. What costs money is the professional time to complete the registration, get a valid registration number for the credit property, and prepare Form 3468, Form 3800, and the transfer election statements so the credit survives on both returns. Registration takes several weeks and must be finished before either party files.

d) Broker or marketplace fee. 0.5% to 3.0% of credit value. Unless you already have a buyer, an intermediary finds one. Small, first-time deals sit at the higher end of that range, and some brokers carry a minimum fee that bites hardest on small credits. Call it about 2%, or $20,000.

e) The transfer discount. This is the big one. Buyers do not pay a dollar for a dollar of credit. They pay less, and keep the spread as their return for taking the risk and fronting the cash. Today's market for this kind of credit runs 0.75 to 0.85, and 0.85 is the top of that range. A single building owner selling one $1,000,000 credit is not investment-grade and is a small ticket, so plan on the top end only if everything about the deal is clean. At $0.85 the discount is $150,000.

Put together, assuming the 30% rate is valid, an $0.85 price (top of market), and a lean structure with no separate tax opinion and no insurance, both typical at this size:

Net cash realized: about $782,000, or 78 cents on the dollar. That is the honest ceiling for a small transfer where everything goes right.

3. Sensitivity: The Range You Should Actually Plan Around

The base case is one point on a spread. Here is how the net cash moves. Transaction costs are held at about $68,000 across all rows.

That last row is worth sitting with. Tax credit insurance normally runs 2% to 5% of the insured amount, which would be $20,000 to $50,000 on a $1M credit. But carriers price to minimum premiums near $150,000 and often will not write policies below roughly $10,000,000 of credit at all. So for a $1M deal, insurance is effectively off the table. That is not a footnote. It means your buyer cannot lay off risk to an insurer, so the buyer either pays you less or leans harder on your indemnity, which keeps you on the hook. See recapture, below.

4. The Costs the Brochure Never Mentions

The cash waterfall above is what most people mean by "cost of monetizing." Three more items belong in any honest underwrite. These are the ones a vendor who has never actually claimed a credit does not know to raise.

a) The 50% depreciation basis reduction (the quietest large cost). When you claim the ITC, you must reduce the depreciable basis of the property by half the credit amount. A $1,000,000 credit means $500,000 of basis you can no longer depreciate. This benefit does not transfer to your buyer. The owner keeps this cost.

With 100% bonus depreciation restored under OBBBA for property placed in service after January 19, 2025, that lost basis would otherwise have been written off immediately, so the cost is felt right away rather than spread thin over years:

• Pass-through owner at a 37% rate: about $185,000 of lost deductions.
• C-corporation at 21%: about $105,000.

This single item is usually larger than every transaction cost in Section 2 combined, and it is the one almost no vendor mentions, because you only learn about it by actually filing.

b) Prevailing wage and apprenticeship (the 5x cliff). The jump from 6% to 30% is a five-fold difference. Miss the PWA requirements on a project that needed them and your "$1,000,000 credit" is a $200,000 credit, plus penalties. Meeting them is not free either: prevailing wages raise construction labor cost, and you have to maintain certified payroll, apprenticeship ratios, and back-up records, often through a third-party compliance service.

There is an exemption, and it is where people get careless. Systems under 1 MW of output are exempt from PWA and still get the full 30%. For geothermal the output is measured in thermal terms, and the arithmetic is genuinely close for a system large enough to throw off a seven-figure credit. Some qualify for the exemption; some do not. The downside of assuming you are exempt when you are not is an 80% haircut on the credit. That is a question for an engineer and your tax counsel before you model a single dollar at 30%, not after.

c) Recapture (a five-year string attached). The ITC vests over five years, 20% per year. If the building is sold or the system stops being qualifying energy property inside that window, the credit is recaptured. In a transfer, the buyer carries the recapture exposure, which is exactly why they discount and demand indemnities. With no insurance available at this deal size, that indemnity runs back to you. So the sale is not truly closed for five years. You are carrying a contingent liability the whole time.

d) Carrying cost and timing. You spend the capital now. You cannot monetize until the system is placed in service, registered (several weeks), marketed, and closed (a transfer averages around three months, and 3.5 to 8.5 months is normal). Realistically a year passes between spending and getting the transfer check. At a normal cost of capital, the time value on a credit of this size is another $45,000 to $90,000 you should carry in the model.

5. The Full Picture

Stacking the honest cash result against the economic cost of claiming the credit at all:

So a "$1,000,000 tax credit," underwritten honestly, is worth somewhere around $0.60 to $0.68 of real after-tax value in a clean small-deal transfer, and closer to $637,000 at the midpoint, before anyone fumbles prevailing wage or triggers recapture. Frame it however you like for a given audience, but that is the number to build a pro forma on.

6. How to Underwrite It Properly

A short checklist that separates people who have done this from people who have only pitched it:

1. Confirm the rate before you model it. 6% or 30%? Does the system clear or miss the 1 MW thermal threshold? Get an engineer's number in writing.
2. If PWA applies, price the compliance in. The labor premium and the recordkeeping, not just the higher credit.
3. Get the eligibility study early. It sets the real credit, and it is the document your buyer's diligence will test.
4. Assume no insurance at this deal size, and assume the buyer pushes recapture risk back to you for five years.
5. Plan on 0.78 to 0.82, not the top of the market, and net the broker, legal, study, and CPA costs off the top.
6. Put the depreciation basis reduction in the pro forma. It is the biggest number people forget.
7. Model the timing gap. Cash out now, check in roughly a year.

7. Bottom Line

The geothermal ITC is worth pursuing. It came through the 2025 cuts intact, it still pays 30%, and even at a real 64 cents on the dollar it is a strong return on a system you were likely building anyway.

The problem is never the credit. It is buying the brochure number and modeling $1,000,000 when the deal delivers closer to $637,000, then discovering the gap after you have already committed. Anyone can tell you the credit exists. Underwriting what it actually pays, net of every cost and risk, is the whole job. That is the work we do for developers before they build.

Assumptions and Sources

Worked example assumptions: 30% credit rate; $3.33M implied eligible basis; $0.85 transfer price (top of a 0.75 to 0.85 market); about 2% broker fee; $15,000 study; $25,000 legal; $8,000 CPA; no insurance; no separate tax opinion in the base case. Depreciation basis reduction valued at 21% (C-corp) to 37% (pass-through) marginal rates with 100% bonus depreciation.

Sources:

• Plante Moran, Geothermal heat pump systems tax incentives (Feb 2026): Section 48 rates, phase-down, OBBBA treatment.
• Plante Moran, How cost segregation supports renewable energy projects for Sections 48 and 48E.
• Crux, An ultimate guide to transferable tax credits (2026): transfer pricing, broker fees, registration, timing.
• Crux, Tax credit insurance coverage: cost and how to procure: insurance economics and small-deal limits.
• IRS, Elective pay and transferability FAQs: Transferability: pre-filing registration, basis reduction.
• RSM, Tax bill significantly changes clean energy credits: OBBBA.