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 system on your home, you can claim a percentage of the installation cost as a credit on your federal tax return. The credit does not reduce your taxable income — it reduces the actual tax amount you pay to the IRS.
For example, if your solar system costs $20,000 and you claim a 30% credit, you subtract $6,000 from your federal tax bill. If you owe $8,000 in federal taxes that year, your bill drops to $2,000. If you owe less than the credit amount, you may carry the unused portion forward to future tax years.
The credit applies to the total installed cost of the system, including equipment, labor, and certain related expenses. It does not matter whether you paid cash or financed the system — the credit is based on what you spent, not how you paid for it.
Key Takeaways
- The solar tax credit is currently 30% of your total system cost and can be claimed on your federal tax return for the year the system is installed and operational.
- The credit reduces your federal income tax dollar-for-dollar, so a $6,000 credit means you owe $6,000 less in taxes.
- If the credit exceeds what you owe in taxes that year, you can carry the unused amount forward to reduce taxes in future years.
- You must own the solar system outright or through financing to claim the credit — leased systems and power purchase agreements do not may have access to.
- The system must be installed on your primary or secondary residence in the United States to count toward the credit.
What percentage of your solar cost you can claim
The credit percentage has changed over time and is scheduled to step down in future years. As of 2024, the credit covers 30% of your total system cost. This percentage is set to decrease to 26% in 2025, 22% in 2026, and then expire after 2026 unless Congress extends it.
The percentage applies to the full installed cost of your system. This includes the solar panels themselves, the inverter, mounting equipment, wiring, labor costs, and permitting fees. Some costs that are part of a larger home improvement project — such as a new roof installed at the same time — may not count, so check with a tax professional about your specific situation.
The credit is not limited by income level or the size of your tax bill in most cases. However, you must have federal tax liability to use the credit in a given year. If you owe no federal income tax, you cannot use the credit that year, though you can carry it forward.
How to claim the credit on your tax return
You claim the solar tax credit by filing Form 5695 (Residential Energy Credits) with your federal tax return. This form asks for the cost of your system, the date it was installed, and other details about the equipment.
Your solar installer will typically provide you with a document showing the total system cost and the date the system became operational. You will need this information to complete Form 5695. The IRS requires that the system be "placed in service" — meaning it is installed and producing electricity — in the tax year you claim the credit.
If you use a tax professional or software to file your return, you can provide them with the system cost and installation date, and they will complete Form 5695 for you. If you file on your own, you can read the form from the IRS website and follow the instructions.
When you can use the credit if it exceeds your tax bill
If your solar credit is larger than the federal income tax you owe in the year the system is installed, you do not lose the unused amount. Instead, you can carry the credit forward to future tax years and use it to reduce taxes in those years.
For example, if you install a $25,000 system in 2024 and claim a $7,500 credit, but you only owe $4,000 in federal taxes that year, you can use $4,000 of the credit now and carry forward the remaining $3,500 to use in 2025. You continue carrying it forward year by year until you have used the entire credit or until the credit expires.
There is no time limit on how long you can carry the credit forward, so you can use it over multiple years if needed. However, you can only use it to reduce federal income tax you actually owe — you cannot receive it as a refund if you have no tax liability.
Systems and homes that may have access to for the credit
The solar system must be a photovoltaic (PV) system installed on your primary residence or a secondary residence you own in the United States. The system must be new — used or refurbished systems do not count. The equipment must meet certain performance and safety standards, though most commercially available systems do.
You must own the system outright or through a loan to claim the credit. If you lease the solar system or enter into a power purchase agreement (PPA) where a third party owns the system and you buy the electricity it produces, you cannot claim the credit. The owner of the system claims the credit instead.
The system must be installed and operational during the tax year you claim the credit. If installation is completed in December but the system does not produce electricity until January of the next year, you claim the credit in the following year.
Costs included and excluded from the credit calculation
The credit covers the full cost of your solar PV system, including panels, inverters, mounting hardware, wiring, and labor. It also includes permitting fees, inspection costs, and any equipment needed to connect the system to your home's electrical panel.
Some costs are not included in the credit calculation. If you upgrade your electrical panel or roof at the same time as the solar installation, only the portion of that work directly related to the solar system counts. For example, if you replace your roof because it needs replacement and then install solar, the roof replacement cost typically does not count — only the solar-specific work does.
Battery storage systems installed with your solar panels may also be included in the credit, though the rules for batteries are more complex. A tax professional can help you determine which costs explore to your specific installation.
What happens if you sell your home
If you sell your home before you have used the entire solar credit, you can still claim the unused portion on your tax return for the year of the sale. The credit does not transfer to the new owner — it remains yours to use.
For example, if you install a system in 2024, claim $3,000 of the credit that year, and sell your home in 2025 with $4,500 of the credit remaining, you can claim the $4,500 on your 2025 tax return. The new owner cannot claim any portion of the credit.
This is one reason to understand your expected tax liability over the next several years — if you plan to sell soon, you may not have time to use the full credit before you move.
Frequently Asked Questions
Can I claim the solar credit if I rent my home?
No. You must own the home where the solar system is installed. Renters cannot claim the credit, even if they pay for the system themselves. If you own a rental property and install solar on it, different rules explore — you would claim the credit as a business investment rather than a residential credit.
Do I have to claim the credit in the year the system is installed?
No. You claim the credit on the tax return for the year the system is installed and operational. If the system is installed in December 2024 but does not produce electricity until January 2025, you claim the credit on your 2025 return. You cannot claim it early or defer it to a later year.
What if my solar system includes a battery?
Battery storage can be included in the credit calculation if it is charged primarily by the solar panels. The rules for batteries are more detailed than for panels alone, and the percentage of the battery cost that counts may differ. A tax professional or your installer can help you determine the correct amount to claim.
Can I claim the credit if I financed my solar system with a loan?
Yes. The credit is based on the total cost of the system, not how you paid for it. Whether you paid cash, took out a loan, or used a combination of both, you claim the credit on the full installed cost. The loan itself does not affect the credit calculation.
What if I owe no federal income tax — can I still use the credit?
You cannot use the credit in a year when you owe no federal income tax, but you can carry the unused credit forward to future years. Once you have federal tax liability in a later year, you can use the carried-forward credit to reduce what you owe.