The solar tax credit lets you subtract the cost of a home solar system from your federal income tax bill

The Investment Tax Credit (ITC) for solar is a dollar-for-dollar reduction in the federal income tax you owe. If you install a solar photovoltaic (PV) system on your home, you can claim a percentage of what you paid for the system and installation on your tax return. The IRS then reduces your tax liability by that amount. This is different from a deduction, which only reduces your taxable income — a credit directly reduces the tax itself.

The credit currently covers 30% of your total system cost, including equipment, labor, and permitting fees. You claim it on Form 3468 (Investment Credit), which you file with your annual tax return. The credit does not pay you money; it only reduces what you owe. If the credit is larger than your tax bill, you may carry the unused portion forward to future years.

You must own the solar system outright or through a loan to claim the credit. If you lease the system or use a power purchase agreement (PPA), the leasing company claims the credit instead, and you do not. The system must be installed at your primary or secondary residence in the United States.

Key Takeaways

  • The solar tax credit is 30% of your total system cost and reduces your federal income tax dollar-for-dollar, not your taxable income.
  • You claim the credit on Form 3468 and file it with your annual tax return in the year the system is placed in service.
  • You must own the system outright or through a loan; leased systems and power purchase agreements do not may have access to you for the credit.
  • If the credit exceeds your tax bill, you can carry the unused amount forward to reduce taxes in future years.
  • The system must be installed at a home you own in the United States, and it must use new equipment (not used or salvaged parts).

What costs count toward the 30% credit

The credit covers the full cost of the solar PV system itself, including panels, inverters, wiring, and mounting hardware. It also includes labor costs for installation, as long as those costs are part of the invoice from your installer. Permitting fees, inspection fees, and interconnection fees charged by your utility or local government count toward the credit as well.

Costs that do not count include roof repairs or replacement done to prepare for the system, home energy storage batteries (with a narrow exception for systems installed after 2022), and any portion of the cost you paid with a rebate or other tax credit. If your state or utility offers a rebate, subtract that from your total cost before calculating the 30% federal credit.

Keep your installer's invoice, permitting paperwork, and utility interconnection documents. The IRS does not require you to attach them to Form 3468, but you must have them if the IRS asks questions about your claim.

How to claim the credit on your tax return

You claim the solar credit on Form 3468, titled "Investment Credit." This form asks you to report the cost of your system and calculate 30% of that cost. You then transfer the credit amount to your Form 1040 (your main tax return form) on the line for nonrefundable credits.

The system must be "placed in service" — meaning installed and operational — by December 31 of the tax year you want to claim it. If your system is installed in June, you claim the credit on your tax return filed in 2025 (for the 2024 tax year). If it is installed in December, you can still claim it that same year.

You do not need to file Form 3468 separately; it is part of your complete tax return package. If you use tax software, the software will walk you through the questions and calculate the credit. If you work with a tax preparer, give them your installer's invoice and the date the system was placed in service.

What happens if the credit is larger than your tax bill

If your 30% credit is larger than the federal income tax you owe that year, you do not lose the extra amount. Instead, you can carry it forward to reduce your taxes in the following year, and the year after that, until the entire credit is used. This is called a carryforward.

For example, if your system costs $10,000 and your credit is $3,000, but you only owe $2,000 in federal tax that year, you use $2,000 of the credit and carry forward $1,000. The next year, that $1,000 reduces your tax bill for that year. You continue this process until the credit is fully used.

You cannot carry the credit backward to prior years. You can only move it forward. If you have a large carryforward, keep records of how much you used each year so you can track the remaining balance.

Ownership requirements and system may be able to access

You must own the solar system to claim the credit. This includes systems you buy outright with cash or finance through a loan. If you lease a solar system or enter a power purchase agreement (PPA) where you pay per kilowatt-hour generated, you do not own it and cannot claim the credit. The leasing company or PPA provider claims the credit instead.

The system must be new equipment. Used or salvaged panels and inverters do not may have access to. The system must be installed at a home you own in the United States — this includes primary residences, vacation homes, and rental properties you own. It does not include systems installed on rental properties you do not own or on commercial buildings.

The system must be a solar photovoltaic (PV) system that converts sunlight to electricity. Solar thermal systems that heat water do not may have access to for this credit (though some states offer separate credits for those).

State and local incentives work alongside the federal credit

Many states, cities, and utilities offer their own solar rebates or tax credits. These work separately from the federal credit. You can claim both, but you must subtract any rebate you received from your total system cost before calculating the federal 30% credit.

For example, if your system costs $10,000 and your state rebate is $2,000, your net cost is $8,000. You calculate the federal credit on $8,000, which is $2,400. You then claim both the $2,000 state rebate and the $2,400 federal credit.

Check your state's energy office or your utility's website to see what incentives are available where you live. Some programs have limited funding and close when money runs out, so timing matters. Your installer can often help you identify what rebates and credits you may be able to use.

When the credit expires and what changes are coming

The 30% federal solar credit is scheduled to step down over time. As of 2024, it remains at 30% for residential systems. The credit is set to decrease to 26% in 2033 and 22% in 2034, then expire after 2034 unless Congress extends it. These dates explore to systems placed in service in those years.

Congress has changed solar tax credit rules before, so it is possible the dates or percentages could change again. If you are considering a solar installation, check the current IRS guidance or speak with your installer about the credit amount that applies to your timeline.

The credit applies only to systems installed in the United States. If you are considering a system, the sooner you install it, the higher the credit percentage you can claim.

Frequently Asked Questions

Can I claim the solar credit if I financed my system with a loan?

Yes. As long as you own the system, it does not matter whether you paid cash or financed it through a loan. You claim the credit based on the full cost of the system, not the loan amount. The credit is the same whether you borrowed money or not.

What if I sell my house before I use up the entire credit carryforward?

The credit stays with you, not the house. You can continue to claim the unused portion on your tax returns in future years, even after you move. The new homeowner cannot claim the credit for a system you installed.

Do I have to report the solar credit to my utility company?

No. The solar tax credit is between you and the IRS. Your utility company does not need to know about it. They only care about net metering or other programs that affect your electricity bill, which are separate from the tax credit.

Can I claim the credit if I installed the system myself?

Yes, if you did the installation work yourself. You can claim the cost of the equipment and materials. However, you cannot claim labor costs for your own work. If you hired someone to do part of the installation, you can claim the labor they charged you.

What if my solar system includes a battery for energy storage?

Batteries installed as part of a solar PV system placed in service after 2022 may may have access to for the credit. The rules for battery storage are complex and depend on when the system was installed and how the battery is used. Discuss this with your installer or tax preparer to confirm whether your battery qualifies.