Solar panels are not tax deductible, and they never were in the way mortgage interest or charitable giving is. What existed instead was a federal tax credit—the Residential Clean Energy Credit under Section 25D—that covered 30 percent of the cost of a qualifying home solar system. That credit has been terminated for any installation completed after December 31, 2025.1Internal Revenue Service. Residential Clean Energy Credit If your system was up and running by that date, you can still claim the credit on your 2025 return and carry forward anything you cannot use. If it was not, the federal benefit is gone.
Deduction Versus Credit
The distinction matters because it changes what the benefit is worth. A deduction reduces the income the IRS taxes you on, so its value depends on your bracket. A credit reduces the tax itself, dollar for dollar. The solar benefit was always a credit, which is the stronger of the two. A $9,000 credit erases $9,000 of tax owed. A $9,000 deduction saves only a fraction of that.
So the honest answer to whether solar panels are tax deductible is that the question uses the wrong word, and even the right word—credit—now applies only to systems already installed.
What the New Law Did
Public Law 119-21, signed on July 4, 2025 and commonly called the One, Big, Beautiful Bill, moved the residential clean energy credit’s termination date from December 31, 2034 to December 31, 2025.2Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21 The step-down tiers that would have paid 26 percent and 22 percent in later years were struck from the statute.
The cutoff turns on when installation was completed, not when you signed a contract or paid a deposit. The IRS treats the expenditure as made when the original installation of the item is completed, so a project finished on January 2, 2026 falls outside the credit no matter when it began.2Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21 There is no binding-contract exception and no safe harbor for projects in progress.
If Your System Was Installed by December 31, 2025
You can still claim the full 30 percent credit on your 2025 tax return, filed in 2026.1Internal Revenue Service. Residential Clean Energy Credit The credit belongs to the tax year the system was placed in service, so the expiration of the underlying statute does not block a timely claim.
Eligible costs include the panels, inverters, racking, battery storage with a capacity of at least 3 kilowatt hours, and labor for on-site preparation, assembly, original installation, and wiring the system into the home.3Internal Revenue Service. Instructions for Form 5695 (2025)4Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit Solar roofing tiles and solar shingles qualify because they generate electricity. Conventional roofing that merely supports the array does not.1Internal Revenue Service. Residential Clean Energy Credit
The property has to be a home in the United States that you use as a residence. Primary and secondary homes both qualify. A property you rent out and do not live in does not. You also have to own the system, whether by cash purchase or loan. If the panels are leased or covered by a power purchase agreement, the credit stays with the third party that owns the equipment, not with you.1Internal Revenue Service. Residential Clean Energy Credit
Utility rebates and subsidies reduce the cost basis before you apply the 30 percent, whether the money went to you or straight to your installer. Net metering payments for electricity you sell back to the grid do not reduce the basis.1Internal Revenue Service. Residential Clean Energy Credit
Carrying Unused Credit Into Future Years
The credit is nonrefundable. It can bring your federal tax bill to zero, but it will not generate a refund on its own. If the credit exceeds what you owe for the year, the excess carries forward.5Internal Revenue Service. Form 5695 – Residential Energy Credits
This is the part that outlives the statute. The One, Big, Beautiful Bill did not change the carryforward rules. Taxpayers who earned the credit from an installation completed by the end of 2025 can carry forward any unused amount until it is fully claimed.6Congress.gov. Expiration and Carryforward Rules for the Residential Clean Energy Credit So if a $30,000 system produced a $9,000 credit and you only owed $5,000 in federal tax for 2025, the remaining $4,000 rolls into 2026, then 2027, until it is used up.
How to Claim It on Your 2025 Return
Use IRS Form 5695, Residential Energy Credits. On Line 1 of Part I, enter the qualified solar electric property costs from your receipts—equipment, labor, and wiring—after subtracting any utility subsidies or rebates. The form applies the 30 percent rate and walks you through the calculation.3Internal Revenue Service. Instructions for Form 5695 (2025)
Transfer the final credit to Schedule 3 of Form 1040, Line 5a. Attach Form 5695 to your return whether you file electronically or on paper. If the credit is larger than your tax, complete Line 16 to record the carryforward for next year.5Internal Revenue Service. Form 5695 – Residential Energy Credits
Business Solar Is a Separate Track
If you own a business and are considering solar for business property, a different provision still applies. The Investment Tax Credit under Section 48E remains available for commercial projects that begin construction by set deadlines: full credit for projects starting construction by July 4, 2026 and placed in service within four calendar years, with a tighter placed-in-service deadline of December 31, 2027 for construction that begins after that date. Businesses may also use MACRS accelerated depreciation over a five-year recovery period, though bonus depreciation percentages have been declining since 2023.
None of that helps a homeowner directly. It matters only if the property is one you operate a business from.
State and Local Programs
Federal is not the only layer. Many states offer their own solar credits, rebates, property tax exemptions, and performance-based incentives such as solar renewable energy certificates. The value and structure vary widely from state to state, and programs change often.
The state energy office and your utility are the two places to check for what is currently offered where you live, along with any eligibility rules, caps, or deadlines those programs set on their own terms.