Federal Solar Tax Credit Guide

What Is the Federal Solar Tax Credit

The federal Residential Clean Energy Credit, often called the solar tax credit, is a credit against federal income tax for a percentage of the cost of installing a qualifying solar energy system at a home. It was expanded under the Inflation Reduction Act of 2022, which set the credit at 30% of qualifying costs for systems placed in service in recent years, with no dollar cap for most residential solar installations. Tax credit programs are set by Congress and can be changed, reduced, or ended by new legislation, so treat any percentage as informational rather than guaranteed for your specific installation year.

What the Credit Has Covered

When available, the credit has generally applied to:

• Solar panels and related equipment
• Inverters, wiring, and mounting hardware
• Labor costs for on-site preparation, assembly, and installation
• Battery storage equipment, in many cases, even when added to an existing solar system
• Permitting and inspection fees directly tied to the installation

It generally has not applied to costs unrelated to the solar equipment itself, such as general roof replacement not required for the installation, or landscaping.

Eligibility Requirements to Check

Historically, eligibility for the credit has depended on factors such as:

• You own the solar system outright, via cash purchase or loan, rather than leasing it or paying through a power purchase agreement
• The system is installed at a home you own and use as a residence in the United States
• The system is new or being used for the first time
• You have sufficient federal tax liability to use the credit, since it has historically been non-refundable, though unused amounts could often be carried forward to future tax years

Because these requirements and the credit percentage itself are set by tax law, confirm current details on IRS.gov, in the IRS Form 5695 instructions, or with a qualified tax professional before you assume a specific credit applies to your project.

How to Claim the Credit

When the credit is available for a given tax year, homeowners typically claim it by filing IRS Form 5695 with their federal tax return for the year the system was placed in service, then carrying the calculated credit to their standard Form 1040. Keep detailed records and receipts from your contractor, including an itemized breakdown of equipment and labor costs, in case documentation is needed. A tax professional can confirm how the credit interacts with your specific tax situation.

State and Utility Incentives

Beyond any federal credit, many states, utilities, and local governments offer their own solar incentives, such as rebates, property tax exemptions for the added home value, sales tax exemptions on equipment, or performance-based incentives tied to how much electricity your system produces. These programs vary widely by location and change over time. A local utility’s website or your state energy office are good starting points for current program details in your area.

Common Mistakes to Avoid When Claiming the Credit

Homeowners sometimes make avoidable errors when claiming a federal energy credit. Common mistakes include assuming the credit applies automatically without filing Form 5695, using the wrong tax year (the credit generally applies to the year the system was placed in service, not the year you signed a contract or made a deposit), failing to keep an itemized cost breakdown from the installer, or assuming a leased system qualifies when ownership is required. Because tax software and preparers vary in how familiar they are with energy credits, it can help to bring your installer’s documentation directly to whoever prepares your return.

Documentation to Keep

To support a claim, keep your signed contract, an itemized invoice showing the cost of equipment and labor, proof of payment, and any manufacturer or installer certification documents for the equipment installed. If you finance the system with a loan, keep loan documents as well, since the credit is generally based on the full project cost even if you’re paying it off over time. Retaining this paperwork for several years after filing is a reasonable precaution in case of an audit or a need to amend a prior return.

Getting Quotes to Plan Around the Credit

Because tax credit rules affect the net cost of a solar project, it’s worth requesting pricing before assuming what a system will cost after any credit. Request up to 5 no-obligation quotes from independent solar contractors through HomeMatchr, and ask each one to show pricing both before and after any incentives they’re aware of for your area. HomeMatchr is an advertising-supported service and may receive a referral fee when you connect with a provider.