How to Write Off Solar Panels on Taxes: Eligibility and Form 5695

To write off solar panels on your taxes, you claim the federal Residential Clean Energy Credit on IRS Form 5695, which gives you 30% of your qualified installation costs as a dollar-for-dollar reduction of federal income tax. There is now a hard deadline. The One Big Beautiful Bill Act, signed July 4, 2025, repealed the credit for any property placed in service after December 31, 2025.¹ If your system was up and running by that date, you can still claim it on the 2025 return you file in 2026. If it wasn’t, the federal write-off is gone.

Who Can Still Claim the Credit

Two groups of taxpayers can still put this credit on a return:

Homeowners whose solar system was fully installed and operational on or before December 31, 2025. You claim the 30% on your 2025 return.²
Homeowners with unused credit from a prior year. Carryforward amounts remain available even after the repeal, and you keep applying them until the balance reaches zero.³

Nothing was grandfathered based on when you paid. The IRS treats the expenditure as made when installation is completed, so a contract signed and paid in full during 2025 does not qualify if the installer finished the job in 2026.¹ The placed-in-service date controls everything.

Eligibility Rules

You have to own the system outright, whether you paid cash or financed it with a loan. Third-party arrangements where a company owns the panels and sells you the power, like a lease or a power purchase agreement, don’t qualify. The financial risk has to be yours.³

The panels must be installed on a dwelling you use as a residence in the United States. It doesn’t need to be your primary home. A vacation property counts if you actually live there part of the year and don’t rent it out. A pure rental you never occupy does not qualify for this residential credit.²

The equipment has to be new and installed for the first time. Used panels or a system relocated from another property will not qualify.³

Home Office Use

If you run a business from the home, the split depends on how much of the property is used for business. At 20% business use or less, you can claim the full credit on all your solar costs. Above 20%, you can only claim the credit on the personal-use share.² A home used entirely for business doesn’t qualify at all.

What Costs You Can Include

The 30% applies to the total of your qualified expenses:

Solar equipment: photovoltaic panels, inverters, wiring, and mounting hardware.
Labor for onsite preparation, assembly, and installation, including electrical work and structural reinforcement needed to support the panels.⁴
Local permit fees tied to the installation.
Battery storage connected to your home with a capacity of at least 3 kilowatt-hours.⁴

Solar roofing tiles and solar shingles that generate electricity qualify. Traditional roofing underneath them does not. Roof trusses and standard shingles installed to support a solar array are not eligible, even though the work is part of the same project.²

Interest on a solar loan and loan origination fees are excluded from the credit calculation.² This matters more than it sounds. Many solar loans bake dealer fees into the financed amount, sometimes 15% to 30% above the sticker price. Only the actual equipment and installation cost counts, not the financing markup.

How Rebates Change the Math

Some incentives you receive reduce your qualified expenses before you calculate the 30%. Others don’t. Getting this right can move your credit by thousands.

Public utility subsidies for buying or installing the system must be subtracted from qualified expenses, whether the utility pays you or your contractor. Rebates from anyone involved in the sale, such as the manufacturer, distributor, or installer, also reduce your basis when tied to the equipment cost.²

Payments for clean energy you sell back through net metering do not reduce your qualified expenses. State energy efficiency incentives generally don’t require a reduction either, unless they function as a direct purchase-price adjustment under federal tax law.²

Filing on Form 5695

Claim the credit using IRS Form 5695, Part I (Residential Clean Energy Credit). Enter your total qualified solar costs on Line 1. The form walks through the 30% calculation and produces the credit amount.⁵ You’ll need the placed-in-service date, which is when installation was finished and the system became operational, not the date you signed a contract or paid.

The resulting credit flows to Schedule 3 of Form 1040, Line 5a, and from there into your Form 1040 to reduce your tax liability.⁵ You can file electronically or on paper.

Records to Keep

The IRS says you can rely on the manufacturer’s written certification that the product qualifies, but you shouldn’t attach it to the return. Keep it in your files.⁴ Also keep itemized receipts, your signed installation contract, and any document showing the placed-in-service date. With the hard cutoff now in force, proof that the system was operational before January 1, 2026 is what protects a claim if the IRS asks.

Nonrefundable, but It Carries Forward

The credit is nonrefundable. It can zero out your tax bill but will never generate a refund on its own.² If you owe $5,000 in federal income tax and your credit is $8,000, you’ll pay nothing that year but won’t get the remaining $3,000 back as a check.

That unused $3,000 carries to the next tax year. You keep applying it until it’s used up.³ The repeal doesn’t cancel carryforwards from earlier years. If you claimed the credit for a 2024 or 2025 installation and couldn’t absorb it all, you continue reporting the remaining balance on Form 5695 in future years. For homeowners with modest tax liabilities, this carryforward is what makes a large system’s credit usable at all. A $9,000 credit on a $30,000 install might take two or three returns to fully consume.

A Worked Example

Say you paid $28,000 for a solar system installed in November 2025, and your utility gave you a $2,000 rebate tied to the equipment purchase. The math:

Total cost: $28,000
Less utility rebate: $2,000
Qualified expenses: $26,000
Credit at 30%: $7,800

If your 2025 federal income tax is $6,000, you apply $6,000 of the credit that year and carry $1,800 forward. You report the carryforward on your 2026 Form 5695 and keep going until the full $7,800 has offset tax.

State and Local Programs for 2026 Installations

If your installation lands in 2026 or later, the federal write-off is not available. Many states run their own solar incentives, including sales tax exemptions on equipment and property tax exclusions so the added home value from panels doesn’t raise your property tax bill. These vary by state and operate independently of the federal credit. Your state energy office or tax authority will have current details.

1
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
2
Internal Revenue Service. Residential Clean Energy Credit
3
Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
4
Internal Revenue Service. Instructions for Form 5695 (2025)
5
Internal Revenue Service. Form 5695 – Residential Energy Credits (2025)