The federal solar tax credit is worth 30% of your total system cost through 2032
The credit applies to solar panels, installation labor, equipment, permitting fees, and even solar batteries (3 kWh minimum)
You must own your solar panel system to claim the credit (leases and PPAs don't qualify)
The tax credit can be claimed on both primary and secondary residences
Unused credit can be carried forward</span to future tax years with no time limit
What Is the Federal Solar Tax Credit?
The federal solar tax credit, officially known as the Residential Clean Energy Credit (formerly the Investment Tax Credit or ITC), is a federal income tax credit that allows you to deduct 30% of the cost of installing a solar energy system from your federal taxes.
This credit was first established in 2005 and has been extended multiple times. The Inflation Reduction Act of 2022 set the credit at 30% through 2032, after which it will gradually decrease before expiring in 2035 (unless Congress extends it again).
How Much Can You Save?
The solar tax credit can save you thousands of dollars. Here’s how it works for different system sizes:
System Cost
30% Tax Credit
Final Cost
$15,000
$4,500
$10,500
$20,000
$6,000
$14,000
$25,000
$7,500
$17,500
$30,000
$9,000
$21,000
$35,000
$10,500
$24,500
Solar Tax Credit Timeline
30%
2022-2032
Full 30% tax credit available
26%
2033
Credit begins to step down
22%
2034
Further reduction
0%
2035+
Credit expires (unless extended)
The 30% credit is available through 2032 — don't wait!
The solar system must be installed at your primary or secondary residence in the United States
You must own the solar panel system (not lease it)
The solar equipment must be new or being used for the first time
You must have enough tax liability to claim the credit
The system must be placed in service between January 1, 2022, and December 31, 2034
Important Note
You must have sufficient tax liability to claim the credit. If your credit exceeds your tax liability, you can carry the remaining credit forward to future years.
What Expenses Qualify?
Expense Category
Description
Qualifies
Solar Panels
Photovoltaic panels or modules
Contractor Labor
Installation labor costs
Equipment
Inverters, wiring, mounting hardware, etc.
Balance of System
Racking, electrical, monitoring equipment
Energy Storage
Solar batteries installed with solar panels (3 kWh minimum)
Sales Tax
State and local sales taxes on equipment and installation
Permitting Fees
Local permitting and inspection fees
Standalone Battery
Battery installed without solar panels
Battery Storage Requirements
As of 2023, standalone battery storage systems qualify for the tax credit if they have a capacity of at least 3 kWh. Previously, batteries only qualified if installed with solar panels.
How to Claim the Solar Tax Credit
1
Install Your Solar Panel System
Your solar system must be installed and operational during the tax year you're claiming the credit. Keep all receipts, invoices, and documentation.
2
Calculate Your Credit Amount
Multiply your total system cost by 30%. For example, a $25,000 system qualifies for a $7,500 tax credit.
3
Complete IRS Form 5695
Fill out IRS Form 5695 "Residential Energy Credits" to calculate your exact credit amount. This form is filed with your tax return.
4
File Form 5695 with Your Tax Return
Submit Form 5695 along with your Form 1040. The credit amount from Form 5695 will be transferred to your Form 1040.
5
Reduce Your Tax Liability
The credit will reduce your federal income tax liability dollar-for-dollar. Any unused credit can be carried forward to future years.
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How Much Do Solar Panels Cost If…
Is the solar tax credit refundable?
No, the solar tax credit is not refundable—it only reduces the amount of tax you owe and won’t result in a cash refund. Any unused credit can usually be carried forward to future years.
Can I claim the solar tax credit if I lease my solar panels?
No, if you lease solar panels, the tax credit goes to the solar company, not you, since they technically own the system.
Can I claim the tax credit on a second home?
Yes, you can claim the solar tax credit on a second home, as long as it is eligible and you pay for the installation yourself.
Does the solar tax credit apply to new construction?
Yes, the solar tax credit can apply to new construction if you purchase and install the solar system yourself as part of the home’s construction.
Can I claim the tax credit if I have a solar lease or PPA?
No, if you have a solar lease or PPA, the tax credit goes to the company that owns the system, not you.
How many years can I carry forward the solar tax credit?
You can carry forward any unused solar tax credit for up to 5 years.
Can I combine the federal solar tax credit with other incentives?
Yes, you can combine the federal solar tax credit with state, local, and utility incentives to maximize your savings.
What if I don't owe enough in taxes to claim the full credit?
If you don’t owe enough taxes, you can use the unused portion of the solar tax credit in future years, up to 5 years.
