Federal Solar Tax Credit: A 2025 Homeowner's Guide

Quick Facts: The 30% Solar Tax Credit

Here's what you need to know about the federal solar tax credit at a glance:

• Credit Value: 30% of total system cost.
• Eligible Years: For systems installed anytime from 2022 through 2032.
• What It Is: A tax credit, which is a dollar-for-dollar reduction of your federal income tax liability.
• Who Qualifies: Homeowners who purchase (not lease) a new solar panel system for their primary or secondary U.S. residence.
• Key Inclusion: The credit also applies to stand-alone battery storage systems with a capacity of 3 kilowatt-hours (kWh) or more.
• Claim Form: You claim the credit using IRS Form 5695, Residential Energy Credits.

Who Qualifies for the Federal Solar Tax Credit?

Eligibility for the Residential Clean Energy Credit is straightforward, but you must meet a few key requirements.

Ownership is Essential

You must own your solar energy system, whether you paid for it with cash or financed it with a solar loan. If you lease a system or have a Power Purchase Agreement (PPA), the third-party company that owns the system claims the credit, not you.

Property Requirements

The solar PV system must be installed on a home located in the United States. This can be your primary residence or a secondary home (like a vacation house). The credit is not available for rental properties that you do not live in for part of the year.

Tax Liability

The solar tax credit is nonrefundable. This means it can only reduce your tax liability to zero. You must owe federal income tax to take advantage of the credit. If the credit you're owed is larger than your tax liability for that year, you can carry the unused portion forward to reduce taxes in future years.

What Expenses Count Toward the 30%?

The 30% credit applies to the total cost of your system, which the IRS calls the "qualified solar electric property costs." This includes more than just the panels themselves.

Included Costs:

• Solar PV panels or shingles
• Inverters and other power conditioning equipment
• Racking, mounting hardware, and wiring
• On-site labor costs for preparation, assembly, and original installation
• Permitting fees and inspection costs
• Sales tax on eligible expenses
• Stand-alone battery storage (3 kWh capacity or greater)

Excluded Costs:

The credit does not cover expenses for major structural work. For example, if you need to replace your entire roof before installing panels, you cannot claim the cost of the new roof. However, costs directly related to strengthening the roof to support the panels may be eligible. For more guidance, see our guide on combining a new roof with solar panels.

Step-by-Step: How to Claim Using IRS Form 5695

Claiming the federal solar tax credit is a two-part process involving Form 5695 and your main tax return, Form 1040.

Here is a simplified walkthrough. Always consult a tax professional for advice specific to your situation.

Step 1: Determine Your Total System Cost

Gather all receipts and invoices for your solar installation. Add up all qualified expenses (panels, labor, permits, batteries, etc.) to get your total cost.

Step 2: Complete Part I of Form 5695

• Line 1: Enter your total qualified solar electric property costs here.
• Line 5: Add the costs from lines 1 through 4.
• Line 6: Multiply the amount on Line 5 by 30% (0.30). This is your total credit.

Step 3: Calculate Your Tax Liability Limit

• Line 13: You will need to complete the "Residential Clean Energy Credit Limit Worksheet" found in the IRS instructions for Form 5695 to determine this amount. This step calculates how much of the credit you can use this year based on your total tax liability.
• Line 14: Enter your credit limit from the worksheet.

Step 4: Determine Your Carryforward (If Applicable)

• Line 15: Enter the smaller of Line 6 or Line 14. This is the amount of the credit you can claim this year.
• Line 16: If your total credit on Line 6 is more than your limit on Line 14, subtract Line 15 from Line 6. This is the amount you can carry forward to next year's tax return.

Step 5: Transfer the Credit to Your Form 1040

Enter the value from Line 15 of Form 5695 onto Schedule 3 (Form 1040), line 5. The amount will then be factored into your total tax calculation on your main Form 1040.

Filing Tips & Common Mistakes

• Keep Meticulous Records: Store all contracts, invoices, and proof of payment for your solar project. You will need these if the IRS has questions.
• Understand Carryover: If you carry forward part of the credit, you must file Form 5695 again the following year to claim the remaining amount.
• Use Tax Software: Most major tax software (like TurboTax or H&R Block) will walk you through Form 5695 with simple questions, making the process much easier.

Savings Scenarios & Payback Examples

The 30% credit significantly reduces the net cost of going solar and shortens your system's payback period. Here are a few examples based on typical system sizes. (Prices are estimates as of June 2025 and vary by location and equipment).

This dollar-for-dollar credit directly reduces what you owe the IRS, making it much more powerful than a simple tax deduction. Use a solar panel cost calculator to estimate costs and savings for your specific home.

Phase-Down Schedule & Important Deadlines

The Inflation Reduction Act of 2022 established a clear timeline for the Residential Clean Energy Credit. It's crucial to know these dates if you are planning a future installation.

• 30% Credit: For systems installed between January 1, 2022, and December 31, 2032.
• 26% Credit: For systems installed in 2033.
• 22% Credit: For systems installed in 2034.
• 0% Credit: The credit is scheduled to expire for systems installed on or after January 1, 2035.

Policy Watch: Pending Legislation in 2025

While the current law sets the credit's future through 2034, it's important to note that tax policy can change. As of mid-2025, some budget proposals in Congress have discussed altering or reducing clean energy incentives. While passage is uncertain, this legislative risk is a factor to consider. Homeowners planning to go solar in the coming years should monitor energy policy news.

Stacking the ITC With Other Incentives

The federal solar tax credit can be combined with other local, state, and utility incentives to maximize your savings.

• State Tax Credits: Some states offer their own tax credits, which you can claim in addition to the federal one.
• Utility Rebates: Many local utility companies offer one-time cash rebates for installing solar.
• SRECs: In some states, you can sell Solar Renewable Energy Certificates (SRECs) that your system generates, creating an ongoing revenue stream.

It's important to check the rules. Generally, if you receive a rebate from your utility, you must subtract that amount from your total system cost before calculating your 30% federal credit. For a comprehensive list of local incentives, the DSIRE database is an excellent resource maintained by NC State University.

Battery-Only Add-Ons After Solar Install

Good news for existing solar owners: IRS guidance confirms you can claim the 30% credit for a stand-alone battery system (3 kWh or larger) even if you add it years after your original solar panel installation. This allows you to add energy storage and still benefit from the federal incentive. If you're considering adding storage, check out our guide to the best solar batteries.