How Does the Federal Solar Tax Credit Work?

What is the federal solar tax credit?

The federal solar tax credit is for solar systems that were purchased and installed between 2022 and Dec. 31, 2025. The tax credit reduces your income tax liability by 30% of what you spent installing solar panels on your home.

The solar tax credit is nonrefundable, so you can only claim a credit up to the amount of tax you owe for the year. In other words, you won’t get the excess amount refunded if the credit exceeds your tax bill.

Qualifying expenses for the tax credit

Qualifying expenses for the federal solar tax credit generally include:

• Solar electric panels
• Solar water heaters
• Wind turbines
• Geothermal heat pumps
• Fuel cells
• Battery storage technology
• Labor costs for preparation, assembly or installation

Note that clean energy property must be new (not used) and must meet additional criteria to qualify for the tax credit. For example, battery storage technology must have a capacity of at least 3 kilowatt hours.

» RELATED: Solar incentives by state

History of the solar investment tax credit

The solar investment tax credit was established by the “Energy Policy Act of 2005,” which set standards for renewable fuels, mandated an increase in the use of biofuels and established renewable energy-related tax incentives.

In the early days of solar energy, residential systems were far more expensive than they are now. For example, in 2009, it could cost up to $8.50 per watt to install solar panels. The current cost per watt is around $2 to $3.50 before any incentives.

The federal solar tax credit was designed to make solar more accessible to middle-class households. Originally, the ITC was set to offer a 30% tax credit through 2032. That percentage was set to drop to 26% in 2033 and 22% in 2034, but those future adjustments have been eliminated under the new law.

How does the federal tax credit work now?

As of Dec. 31, 2025, the federal tax credit has expired. You can only claim the 30% tax credit on late or amended tax returns if your system was installed, paid for and activated by Dec. 31, 2025.

How to claim the solar tax credit

If you haven’t yet filed your tax return for 2025 or previous eligible years, you may be able to claim the federal solar tax credit. According to the Internal Revenue Service (IRS), you can only claim a refund or tax credits for three years after the tax return due date.

If you failed to claim the credit when you were supposed to, you can file an amended return within three years from the date you filed the original return or two years after the date you paid the tax, whichever is later.

Fill out IRS Form 5695

You can claim the residential energy tax credit on your personal income taxes. If you’re eligible, you should file IRS Form 5695 for the appropriate year with your tax return. Part I of the form calculates the credit, and the final amount is listed on Form 1040.

File your return

Include Form 5695 with your tax return, and make sure to file it within three years of the tax return due date. If you file after this date, you won’t be able to claim a refund or tax credits, including the federal solar tax credit.

Are there other solar energy incentives?

Some states or cities are trying out their own initiatives to help households adopt solar. But in a lot of places, people will likely stop buying solar panels because they may be too expensive without federal incentives.

Still, there are some other incentives that may be available to people going solar, including the following:

Utility company incentives

Local utility companies may offer incentives to get homeowners to purchase home solar power systems. Some companies subsidize the cost of installation or offer rebates, depending on the amount of energy a system produces.

State solar tax credits or rebates

Some states offer tax credits to encourage residents to purchase solar panel systems. Some state governments may also offer cash rebates for installing solar panels. These rebates often help reduce the cost of installation by 10% to 20%.

Other incentives

Other incentives may include subsidized loans, tax exemptions and solar renewable energy certificates (SRECs). Before purchasing a system, it’s best to talk to a local solar installer since they likely know about any incentives currently available in your area.

How much do solar panels cost?

A standard solar panel system costs around $15,000 to $30,000, not including any financial incentives. You might be eligible for local incentives that make the system cheaper, depending on where you live.

Average solar panel costs by state

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