Geothermal Tax Parity Act Gives Clean Energy the Same Tax Breaks as Oil and Gas

The Geothermal Tax Parity Act is all about leveling the playing field for clean energy, specifically geothermal power. This bill amends the Internal Revenue Code to give geothermal energy developers the same key tax advantages that oil and gas companies have enjoyed for years. Essentially, it’s a big financial nudge intended to speed up the exploration and development of geothermal deposits across the country. The changes apply to tax years beginning after the bill is enacted.

The 24-Month Rule: Faster Cost Recovery

One major change deals with how geothermal companies handle the costs of looking for new deposits. Right now, when oil and gas companies spend money on geological and geophysical surveys—the expensive mapping and testing needed before drilling—they can write those costs off over a short period. Section 2 of this bill changes Section 167(h)(1) of the tax code to let geothermal companies do the exact same thing: amortize those exploration and development costs over just 24 months. Think of it this way: instead of waiting years to deduct those massive upfront expenses, a geothermal developer gets to recover those costs much faster. This improves cash flow and makes the early, risky stages of a project far more attractive to investors.

Removing the Passive Loss Hurdle

The second, and arguably bigger, change addresses a common investment roadblock called the passive activity loss limitation. For most investments where you put in money but aren't actively running the show (a "passive activity"), you can only deduct losses against income from other passive activities. This is a big headache for investors. However, the tax code already carves out an exception for "working interests" in oil and gas properties, treating them as non-passive even if the investor doesn't materially participate. Section 3 of this Act simply adds "geothermal" to that exception in Section 469(c)(3).

What does this mean in the real world? Say you’re an investor—a doctor or a software executive—who wants to put money into a geothermal drilling project. Before this bill, your losses might have been trapped by the passive loss rules, making the investment less appealing. Now, because geothermal working interests are treated the same as oil and gas, you can deduct any losses from that project against your regular, active income. This change significantly lowers the financial risk for individual investors, making it much easier for geothermal projects to raise capital.

Why This Matters for the Energy Mix

This bill doesn't directly affect your paycheck or your utility bill today, but it’s a significant move in how the government encourages energy production. By granting geothermal—a clean, reliable, 24/7 power source—the same tax treatment as established fossil fuels, the bill signals a serious effort to accelerate its growth. For the renewable energy sector, this is a clear win, removing financial barriers that previously made geothermal projects less competitive compared to oil, gas, and even other renewables that already enjoy various incentives.