30% Solar Tax Credit 2025: Complete Guide

The federal solar Investment Tax Credit (ITC) is the single most valuable incentive for homeowners going solar in 2025. This comprehensive guide explains exactly how the credit works, what qualifies, how to claim it, and critical deadlines you need to know.

What Is the 30% Federal Solar Tax Credit?

The Investment Tax Credit (ITC), commonly called the "solar tax credit," is a federal income tax credit that allows you to deduct 30% of the cost of installing a solar energy system from your federal taxes. This isn't a rebate or a deduction—it's a dollar-for-dollar reduction in the taxes you owe.

Key Facts About the Solar Tax Credit

• 30% of total system cost: Includes equipment, labor, permits, and installation
• No maximum limit: Whether your system costs $15,000 or $50,000, you get 30% back
• Available through 2032: The full 30% rate is guaranteed for systems installed by December 31, 2032
• Can be carried forward: If you don't owe enough taxes in one year, you can roll the credit to future years
• Homeowners only: Renters cannot claim the credit (only property owners)
• Primary or second homes: Vacation homes and rental properties do NOT qualify

How Much Money Will You Save?

The solar tax credit translates to substantial real-world savings. Here's what homeowners actually receive based on common system sizes:

Example: If you install a 6 kW solar system for $18,000, you'll receive a $5,400 tax credit when you file your federal return. This reduces your net system cost to $12,600.

What Expenses Qualify for the Tax Credit?

The ITC covers the complete installed cost of your solar energy system. Here's exactly what qualifies:

✅ Expenses That Qualify

• Solar panels (modules): The photovoltaic cells that generate electricity
• Inverters: String inverters, microinverters, or power optimizers
• Racking and mounting equipment: Hardware that attaches panels to your roof or ground
• Wiring and electrical components: All electrical connections and safety equipment
• Labor costs: Installation, permitting, and inspection fees
• Sales tax: Tax paid on equipment and installation
• Energy storage (batteries): ONLY if charged 100% by solar (not grid charging)
• Solar monitoring systems: Equipment to track system performance

❌ Expenses That Do NOT Qualify

• Roof repairs or replacement: Even if done to accommodate solar panels
• Tree trimming or removal: Even if necessary for solar installation
• Standalone batteries: Batteries that charge from the grid without solar
• Extended warranties: Additional warranty coverage beyond standard
• Portable solar systems: RV solar panels or portable generators
• Solar pool heaters: Only solar electric systems qualify (not thermal)
• Solar water heaters: These have a separate, smaller tax credit

Critical Question: Do Batteries Qualify?

Yes, BUT with important conditions: Home batteries qualify for the 30% tax credit ONLY when paired with solar and charged exclusively by solar panels. Here's what you need to know:

Battery Tax Credit Requirements

• Must be charged by solar: The battery must be configured to charge 100% from your solar system
• No grid charging: Batteries that charge from the grid (even partially) do NOT qualify
• 3 kWh minimum capacity: The battery must have at least 3 kilowatt-hours of capacity
• Same year installation: Battery and solar must be installed in the same tax year
• Retrofit batteries: If you add a battery to existing solar later, it may still qualify if it meets all requirements

Example: A Tesla Powerwall 2 (13.5 kWh capacity) costs $12,000 installed. If paired with solar and charged 100% by solar, you receive a $3,600 tax credit (30% × $12,000).

Other Equipment That Qualifies

Heat Pumps

Heat pumps qualify for a DIFFERENT tax credit (not the solar ITC). The Energy Efficient Home Improvement Credit provides up to $2,000 for qualifying heat pump installations (26 SEER2 or higher). Learn more in our heat pump cost guide.

EV Chargers

The Alternative Fuel Vehicle Refueling Property Credit covered 30% of EV charger installation costs (up to $1,000) but expired September 30, 2025. New installations after this date do not qualify for federal credits.

How to Claim the Solar Tax Credit

Claiming the solar tax credit is straightforward but requires careful documentation. Here's the step-by-step process:

Step 1: Complete Your Solar Installation

• Your system must be installed and operational (turned on/commissioned)
• Installation must be completed by December 31 of the tax year you're claiming
• The "placed in service" date is when your utility grants permission to operate (PTO)

Step 2: Gather Required Documentation

Collect these documents from your solar installer:

• Final invoice: Itemized breakdown of all costs (equipment and labor)
• Proof of payment: Receipt showing you paid for the system
• Manufacturer certifications: For equipment (panels, inverters, batteries)
• Permission to Operate (PTO): From your utility company
• Interconnection agreement: If required by your utility

Step 3: Fill Out IRS Form 5695

The solar tax credit is claimed on IRS Form 5695: Residential Energy Credits. This form is filed along with your regular tax return (Form 1040).

Key sections to complete:

• Part I: Residential Clean Energy Credit (this is the solar section)
• Line 1: Enter total solar electric property costs
• Line 6a: Enter battery storage costs (if applicable)
• Line 14: Your total credit (30% of qualified expenses)

Step 4: Transfer to Form 1040

The credit from Form 5695 transfers to Schedule 3 (Form 1040), Line 5. This reduces your total tax liability dollar-for-dollar.

Step 5: Store Documentation

Important: You do NOT submit invoices or receipts with your return, but you MUST keep them for at least 7 years in case of an IRS audit. Store these documents securely:

• All invoices and receipts
• Manufacturer certifications
• Photos of the completed installation
• Utility interconnection documents
• Copy of your filed Form 5695

What If You Don't Owe Enough Taxes?

The solar tax credit is non-refundable, meaning it can only reduce your tax liability to zero—it won't generate a refund beyond what you owe. However, it can be carried forward indefinitely.

How the Carryforward Works

Example scenario: You install a $24,000 solar system and receive a $7,200 tax credit. But you only owe $4,000 in federal taxes for 2025.

• 2025 taxes: Use $4,000 of the credit (taxes reduced to $0)
• Remaining credit: $3,200 carries forward to 2026
• 2026 taxes: Apply the remaining $3,200 to your 2026 tax bill
• If still unused: Continue carrying forward until fully used (no expiration)

Pro tip: If you expect low tax liability, consider timing your solar installation to a year when you'll have higher income (and thus higher taxes).

Solar Tax Credit Expiration Timeline

The Inflation Reduction Act of 2022 extended the solar tax credit through 2034, but the rate decreases over time. Here's the complete schedule:

Action deadline: To maximize your tax savings, install solar by December 31, 2032 to claim the full 30% credit. Systems installed in 2033-2034 receive reduced credits, and the residential credit expires completely after 2034.

Eligibility Requirements

To claim the solar tax credit, you must meet ALL of these requirements:

✅ You Qualify If:

• You own the solar system: You purchased the system outright or with a loan (leases and PPAs do NOT qualify)
• The system is at your residence: Primary home or second home (not rental property)
• You owe federal income tax: You have federal tax liability to offset
• The system is new: Used or refurbished equipment does not qualify
• You own the home: The system must be installed on property you own
• Installed in the US: Must be located in the United States or US territories

❌ You Do NOT Qualify If:

• You lease the solar system: The leasing company claims the credit, not you
• You signed a Power Purchase Agreement (PPA): The PPA provider owns the system and claims the credit
• The system is on rental property: Investment properties do not qualify for the residential credit
• You're a renter: Only property owners can claim the credit
• You have no tax liability: The credit is non-refundable (but can be carried forward)

Solar Leases vs Purchasing: Tax Credit Impact

This is a critical decision point. With a solar lease or PPA, you do NOT receive the tax credit—the leasing company claims it instead and (theoretically) passes savings to you through lower lease payments.

Bottom line: If you can qualify for financing or pay cash, purchasing is almost always better financially than leasing. The 30% tax credit alone makes ownership far more attractive. Learn more in our solar financing guide.

Common Questions About the Solar Tax Credit

Can I claim the credit if I financed my solar system?

Yes! As long as YOU own the system (not the lender), you can claim the full 30% tax credit. This applies to solar loans, home equity loans, HELOCs, and personal loans. The credit is based on the total system cost, not your out-of-pocket payment.

Does the tax credit reduce the amount I can finance?

No. You finance the full system cost upfront, then receive the tax credit when you file your return. Many homeowners use the tax credit refund to pay down their solar loan principal.

What if I installed solar but haven't turned it on yet?

The system must be "placed in service" (operational and interconnected with the grid) to claim the credit. Installation alone is not sufficient. The relevant tax year is when your utility grants Permission to Operate (PTO), not when installation began.

Can I claim the credit for solar I installed on a rental property?

No. The residential solar tax credit only applies to your primary residence or second home. Rental properties may qualify for the commercial ITC (different rules and forms).

What if I move before using all of the credit?

The unused portion of the credit stays with YOU (not the house). You can continue to carry it forward and use it on future tax returns, even if you've moved to a different home.

Can I claim credits for multiple renewable energy systems?

Yes. If you install solar AND a heat pump AND an EV charger in the same year, you can claim the solar ITC (30% of solar costs), the heat pump credit (up to $2,000), and the EV charger credit (if installed before September 30, 2025). These are separate credits with different rules.

State and Local Incentives Stack with Federal Credit

The 30% federal tax credit is just the beginning. Most states offer additional incentives that STACK on top of the federal credit:

Additional Incentive Types

• State tax credits: Additional percentage-based credits (varies by state)
• State rebates: Direct cash-back payments (e.g., California SGIP for batteries)
• Utility rebates: Local electric company incentive programs
• Property tax exemptions: Solar doesn't increase your property tax in most states
• Sales tax exemptions: Many states exempt solar equipment from sales tax
• Net metering: Utility credits for excess solar production

Example (California homeowner):

• System cost: $30,000
• Federal tax credit (30%): -$9,000
• California SGIP battery rebate: -$3,000
• Net cost: $18,000 (40% total savings)

Check our state-by-state rebate guides to find incentives in your area:

• California Solar Rebates
• Texas Solar Incentives
• More states coming soon

Working with Tax Professionals

While Form 5695 is relatively straightforward, consider consulting a tax professional if:

• You have a complex tax situation (business income, rental properties, etc.)
• You're combining multiple energy credits
• You need to carry the credit forward multiple years
• You installed solar on a home business or mixed-use property
• You have questions about Alternative Minimum Tax (AMT) implications

A qualified tax advisor can help you maximize your credit and ensure compliance with IRS requirements.

Next Steps: Maximize Your Solar Tax Credit

Ready to take advantage of the 30% federal solar tax credit? Here's your action plan:

1. Calculate your potential savings: Use our solar calculator to see your system cost and tax credit amount
2. Get installer quotes: Compare proposals from local solar installers
3. Verify your tax liability: Check with a tax professional to ensure you can use the full credit
4. Install before 2032: Lock in the full 30% rate by installing before December 31, 2032
5. Keep documentation: Save all invoices, certifications, and permits for IRS records
6. File Form 5695: Claim your credit when filing your federal tax return