The federal Residential Clean Energy Credit is a 30% credit that eligible U.S. taxpayers claim with IRS Form 5695 for solar systems placed in service through December 31, 2025.
The credit does not apply to residential solar property placed in service after December 31, 2025, under current federal rules. If your system was installed and placed in service in 2025, claim the credit on your 2025 federal tax return, even if you file that return in 2026. A system installed in 2026 generally does not qualify for the former federal residential solar credit.
At a Glance
| Question | Answer |
|---|---|
| Federal form | IRS Form 5695, Residential Energy Credits |
| Credit rate for eligible 2022 to 2025 installations | 30% |
| Solar credit cap | No general annual or lifetime dollar cap for solar electric property |
| Installation deadline | December 31, 2025 |
| Claiming year | The tax year when the system was installed and placed in service |
| Refundable? | No. An unused credit may be carried forward |
| Eligible taxpayer | A homeowner or qualifying resident who paid for the property |
| Eligible property | New solar electric property installed at a qualifying U.S. residence |
Step 1: Confirm That Your Solar Installation Qualifies
The system must be new qualified clean energy property installed at a home in the United States. Eligible property can include:
- Solar electric panels
- Solar roofing tiles or solar shingles that generate electricity
- Labor for onsite preparation, assembly and original installation
- Wiring or piping needed to connect the system to the home
- Battery storage installed in connection with the home, if the battery has a capacity of at least 3 kilowatt-hours
Previously owned equipment does not qualify. Traditional roof components, including roof decking, rafters and ordinary shingles, generally do not qualify simply because they support solar panels. Solar shingles and solar roofing tiles may qualify because they generate electricity.
The credit may apply to improvements to your main home. Certain improvements to a second U.S. home may also qualify if you live there part-time and do not rent the property to others. A landlord generally cannot claim the residential credit for a property the landlord does not occupy.
Step 2: Calculate Your Eligible Solar Costs
The federal credit generally uses this calculation:
Eligible solar costs × 30% = potential federal tax credit
Eligible costs may include:
- Solar panels and related equipment
- Inverters and other equipment included in the installation
- Original installation labor
- Onsite preparation
- Wiring required to connect the equipment to the home
- Battery storage installed with the home energy system, if it meets the eligibility requirements
Do not include loan interest or loan origination fees. Used equipment also cannot be included.
Example Calculation
Suppose your solar installation costs $30,000. A utility subsidy treated as a reduction in the purchase price lowers the eligible cost by $2,000.
- Eligible cost: $28,000
- Federal credit: $28,000 × 30%
- Potential credit: $8,400
The credit is nonrefundable. If your available federal income tax liability is $5,000, the credit can generally reduce that liability to zero. It does not automatically send the remaining $3,400 to you as a cash payment. The unused amount may be carried forward under the applicable rules.
Step 3: Account for Rebates and Subsidies
Some incentives reduce the costs used to calculate the federal credit.
You generally subtract a public utility subsidy that pays toward purchasing or installing the clean energy property. A rebate based on the property's cost may also reduce the eligible expense when it comes from a manufacturer, seller, distributor or installer.
Payments for electricity sold back to the grid, including net-metering credits, do not reduce the qualifying solar cost. State incentives require a closer review because their federal tax treatment depends on whether they are treated as a rebate or a purchase-price adjustment.
Step 4: Gather Your Documentation
The IRS does not generally require receipts with Form 5695, but you should keep your records in case the return is audited.
Keep:
- The solar installation contract
- Itemized invoices
- Proof of payment
- The system's installation or placed-in-service date
- Records showing the equipment installed
- Documentation for utility rebates or subsidies
- Battery capacity information, if claiming a battery
- Permits, inspection records or utility approval documents, when available
Installation records may also help establish the property's adjusted basis if you later sell the home.
Step 5: Complete IRS Form 5695
Use Form 5695, Residential Energy Credits, to calculate the residential clean energy credit.
For a solar panel system:
- Enter the qualifying solar electric property costs in Part I.
- Include qualifying installation labor and connection costs.
- Subtract any rebate or subsidy that must be treated as a reduction in cost.
- Calculate the credit.
- Apply the credit against your federal income tax liability.
- Carry forward any allowable unused credit under the form instructions.
- Submit Form 5695 with your federal income tax return.
The credit belongs to the tax year when the property was installed and placed in service. Signing the contract or paying a deposit does not, by itself, determine the claiming year.
The Installation Date Matters
| Situation | Treatment |
|---|---|
| Paid a deposit in 2025 and the system was installed in 2025 | Claim the credit on your 2025 return |
| Paid for the system in 2025 but it was installed in 2026 | The credit generally belongs to the installation year. The federal residential credit is not available for property placed in service after December 31, 2025 |
| Installed the system in 2024 but forgot to claim the credit | Consider filing an amended federal return for the eligible year |
| Installed the system in 2026 | No federal Residential Clean Energy Credit is generally available under the current termination rules |
| Claimed a 2025 credit but could not use all of it | Use the Form 5695 carryforward rules for the unused amount |
The 2025 Form 5695 instructions address carrying unused residential clean energy credit into 2026.
What If You Financed the Solar Panels?
Financing the system does not automatically prevent you from claiming the credit. The key questions are whether you paid for qualifying property and whether the system was installed and placed in service during an eligible year.
Do not add loan interest or loan origination fees to the credit calculation. The credit is based on qualifying property and installation costs, not the total interest paid over the life of the loan.
What If You Lease the Panels or Sign a Power Purchase Agreement?
A solar lease or power purchase agreement is different from buying and owning the equipment. The homeowner usually does not directly pay for and own the qualified solar property as a purchaser would.
Read the contract before claiming the credit. If a solar company owns the system, do not claim the homeowner credit without confirming your eligibility with a qualified tax professional.
Do Not Confuse the Federal Credit With State Incentives
Your state, utility company or local government may offer separate solar rebates, tax credits, property-tax incentives or performance payments. Each program has its own eligibility rules and deadlines.
Check the program terms before calculating the federal credit. A utility subsidy or rebate tied to the property's cost may reduce your federal qualifying expense. A payment for electricity generated or exported to the grid is treated differently under IRS guidance.
Bottom Line
For an eligible system, the claiming year is the year the property was installed and placed in service. Use Form 5695 with that year's federal tax return and calculate the credit from eligible costs only. Systems placed in service after December 31, 2025, generally do not qualify for the federal residential credit under current law, although state and utility programs may follow different rules.