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The Complete Guide to the Federal Solar Tax Credit
- January 15, 2025
Did you know you could save thousands of dollars off your solar panel installation project? It’s true—residential solar, commercial solar, and batteries qualify for a 30% federal solar tax credit.
If you’re thinking about installing solar panels on your home or business, you don’t want to miss out on the federal Investment Tax Credit (ITC). This incentive will significantly reduce your upfront solar installation costs, speeding up your payback period and helping you break even on your investment faster.
Solar Power Pros is Colorado’s leading local solar installation company. We’ve created this guide to help you learn everything you need to know about the solar tax credit, including how to qualify for and claim it so you can save as much as possible on your solar panel installation.
What Is the Federal Solar Tax Credit?
The solar tax credit is a federal incentive for residential and commercial solar panel installations. The tax credit reduces what you owe when you file your federal income taxes by a percentage of your solar installation costs for the year you install your system. The percentage has fluctuated throughout the tax credit’s life but is currently worth 30% of your total solar installation costs—the highest it’s ever been.
History of the ITC
The solar tax credit was first introduced in 2005 and has gone through many iterations since. In 2022 the Inflation Reduction Act was overhauled during the Biden administration, which increased the value of the solar tax credit and extended it for 10 years. As it stands today, it will remain at 30% until 2032, decrease to 26% in 2033, 22% in 2034, then phase out entirely for residential systems in 2035.
Why Act Now?
With the new incoming presidential administration and Congress in 2025, it is unclear whether changes will be made to the credit amount, phase out date, or even elimination of this incentive entirely. Solar Power Pros is monitoring how any policy changes closely. This makes 2025 the best year to secure the 30% tax credit.
Get started with a free solar quote for your home or business today!
Benefits of the ITC
Save 30% Off Total Solar Costs
This generous credit is available for residential and commercial solar systems installed now through 2032.
There’s No Cap or Income Limits
There’s no maximum amount you can claim, and it’s available to anyone who installs a qualifying solar system.
Tax Credit Now Includes Batteries
Starting in 2025, standalone battery storage costs are also eligible for the ITC, making energy storage more accessible.
How Does the Solar Tax Credit Work?
The solar tax credit is not a deduction or a tax refund—it’s a credit that can be applied to your federal income taxes, reducing what you owe.
Let’s say you install a rooftop solar system that costs $20,000. During the tax year you installed, you would receive a tax credit worth 30% of $20,000, which is $6,000. Now let’s say you owe $5,000 when you file your tax return. You can apply your $6,000 credit to your balance, fully covering what you owe. The remaining balance ($1,000 in this case) can be rolled over to the following year.
How to Claim the Federal Solar Tax Credit
Claiming the solar tax credit is a simple and straightforward process. You don’t have to apply for the tax credit or fill out a ton of additional forms. There’s just one extra form to complete when filing your annual tax return.
Here are the step-by-step instructions:
- Save all receipts associated with your solar installation.
- Complete IRS Form 5695 (Residential Energy Credits).
- Add your tax credit information to line 5 on your typical IRS Form 1040.
Disclaimer: We’re solar experts, not tax experts! We always recommend consulting a tax professional before filing to make sure you have claimed your credit accurately.
Are You Eligible for the Solar Tax Credit?
It’s easy to qualify for the federal solar tax credit. The eligibility requirements are very straightforward and most rooftop solar installations qualify.
To get the solar tax credit, you must meet the following criteria, laid out by The Office of Energy Efficiency and Renewable Energy:
- Date of installation: The 30% solar tax credit is available for solar installations completed between 2022 and 2032. To claim the tax credit in a given year, you must complete your installation and turn your solar panels on by the last day of that year.
- Location: The solar energy system must be installed at your primary or secondary home in the United States.
- Ownership: You must own your solar system to claim the tax credit. Leases and Power Purchase Agreements do not qualify. Financed solar panels do qualify.
- Equipment: The equipment used must be new and/or being used for the first time. Repurposed and reused equipment from past solar installations does not qualify.
- Tax liability: You must be a US taxpayer with income tax liability to receive the solar tax credit.
Your Solar Journey Made Easy
Solar Power Pros is here to guide you every step of the way, from understanding how the ITC applies to your system to ensuring you take full advantage of all available incentives.
