Federal Solar Tax Credit 2025-2026: What's Changing
The federal solar Investment Tax Credit (ITC) remains one of the most valuable incentives for homeowners going solar. In 2025 and 2026, you can still claim a 30% credit on your solar installation costs—but the clock is ticking on this generous benefit.
This comprehensive guide explains everything you need to know about claiming the solar tax credit, what's changing between 2025 and 2026, and how to maximize your savings.
Quick Facts: Federal Solar Tax Credit
2025-2032: 30% tax credit on total system cost
2033: Drops to 26%
2034: Drops to 22%
After 2034: Credit expires for residential (remains at 10% for commercial)
What is the Federal Solar Tax Credit?
The federal solar tax credit, officially called the Residential Clean Energy Credit, allows you to deduct 30% of your solar installation costs from your federal income taxes. Unlike a deduction, which reduces your taxable income, a tax credit directly reduces the amount of tax you owe—dollar for dollar.
For example, if your solar system costs $20,000, you'll receive a $6,000 tax credit. If you owe $8,000 in federal taxes for the year, the credit reduces that to just $2,000.
What Costs Are Covered?
The solar tax credit covers virtually all costs associated with your solar installation:
Eligible Expenses
- Solar panels (photovoltaic modules) - The panels that convert sunlight to electricity
- Inverters - Equipment that converts DC to AC power
- Racking and mounting equipment - Hardware that secures panels to your roof
- Wiring and electrical components - All electrical work needed to connect the system
- Labor costs for installation - Professional installation services
- Permitting and inspection fees - Required local government fees
- Energy storage (battery backup) - Added in 2023, batteries now qualify!
- Sales tax on equipment - State and local sales taxes paid
Important Addition: Battery Storage
Starting in 2023, standalone battery storage systems qualify for the tax credit even without solar panels. This is a major change from previous years. A typical home battery system ($10,000-$15,000) now qualifies for a $3,000-$4,500 tax credit.
Eligibility Requirements
To claim the federal solar tax credit, you must meet these requirements:
Required Qualifications
Own Your System
You must purchase the solar system outright (cash or loan). Leased systems and power purchase agreements (PPAs) don't qualify—only the system owner can claim the credit.
New or Existing Home
The system can be installed on your primary residence, second home, or even an off-site community solar project. New construction qualifies if you move in before the system is placed in service.
Sufficient Tax Liability
You need enough federal tax liability to use the credit. If you owe less in taxes than the credit amount, you can roll over the unused portion to future years (no time limit).
System Placed in Service
The system must be operational (generating electricity) to claim the credit. Simply installing panels doesn't count—your utility must have given final approval.
How to Claim the Solar Tax Credit
Claiming the federal solar tax credit is straightforward but requires proper documentation:
Step 1: Complete IRS Form 5695
Download Form 5695 (Residential Energy Credits) from the IRS website or access it through tax software. Part I of this form is specifically for the solar credit. You'll need:
- Total cost of your solar system (from your installer's invoice)
- Installation date
- Your address where the system is installed
Step 2: Calculate Your Credit
Multiply your total system cost by 30%. For example:
System Cost: $24,000
Credit Percentage: 30%
Tax Credit: $24,000 × 0.30 = $7,200
Step 3: Transfer to Form 1040
The credit amount from Form 5695 transfers to your Form 1040 (Schedule 3, Line 5). This reduces your total tax owed.
Step 4: Save Your Documentation
Keep these documents for at least 7 years:
- Final invoice/receipt from your installer
- Manufacturer certification statements for equipment
- Interconnection agreement from your utility
- Proof of payment (canceled check, credit card statement, loan documents)
Important: No Refund if Credit Exceeds Tax Owed
The solar tax credit is non-refundable. If your credit is larger than your tax liability, you won't get a refund for the difference. However, you can carry forward the unused credit to future tax years indefinitely.
What's Changing: 2025 vs 2026
Good news: Nothing is changing between 2025 and 2026. Both years maintain the 30% credit rate.
| Year | Credit Percentage | Example: $20k System |
|---|---|---|
| 2025 | 30% | $6,000 credit |
| 2026 | 30% | $6,000 credit |
| 2027-2032 | 30% | $6,000 credit |
| 2033 | 26% | $5,200 credit |
| 2034 | 22% | $4,400 credit |
| 2035+ | 0% (residential) | $0 credit |
The key takeaway: You have until the end of 2032 to install solar and receive the full 30% credit. After that, it begins stepping down and eventually expires for residential installations.
Maximizing Your Tax Credit
Strategy 1: Add Battery Storage
Since batteries now qualify for the full 30% credit, adding energy storage significantly increases your total credit. A $12,000 battery adds $3,600 to your tax credit while providing backup power during outages.
Strategy 2: Include All Eligible Costs
Don't forget to include sales tax, permitting fees, and any structural upgrades needed for installation (like roof reinforcement). These all count toward the credit.
Strategy 3: Time Your Installation
The credit is claimed in the tax year when your system is "placed in service" (operational), not when you sign the contract. If you install in late December 2025, you can claim the credit on your 2025 taxes filed in early 2026.
Strategy 4: Combine with State Incentives
Many states offer additional tax credits, rebates, or exemptions that stack with the federal credit. Check the DSIRE database for your state's programs.
Common Questions
Can I claim the credit if I have a solar loan?
Yes! As long as you own the system (not lease it), you can claim the credit even if you financed the purchase with a loan.
What if I don't owe enough taxes to use the full credit?
You can carry forward any unused credit to future tax years with no expiration. For example, if you receive a $6,000 credit but only owe $2,000 in taxes, you use $2,000 this year and carry forward $4,000 to next year.
Can I claim the credit for a second home?
Yes, the credit applies to your primary residence, second home, or even off-site community solar installations.
Do I need to live in the home before claiming the credit?
For new construction, you must move in before the system is placed in service. For existing homes, you claim the credit in the year the system becomes operational.
Real Example: Complete Tax Credit Calculation
Case Study: Average 8kW System with Battery
Ready to Claim Your Solar Tax Credit?
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Last updated: December 21, 2025 | Category: Solar Energy | Tax information is for educational purposes only—consult a tax professional for advice specific to your situation.