IRA Solar Tax Credit: Eligibility, Form 5695, and the Cutoff

The IRA solar tax credit — the 30% Residential Clean Energy Credit created by the Inflation Reduction Act of 2022 — is no longer available for new installations. The One Big Beautiful Bill Act, signed on July 4, 2025, terminated the credit for any expenditures made after December 31, 2025.¹ If your system was fully installed and operational by that date, you can still claim the 30% credit on your 2025 return. If installation finished in 2026 or later, no credit is available, even if you signed a contract and paid deposits in 2025.

The 30% Credit and the Hard Cutoff

The Inflation Reduction Act set the Section 25D credit at 30% of qualifying costs for property placed in service from 2022 through 2032. Section 70506 of the 2025 law rewrote that termination date and eliminated the planned step-down entirely.¹

There is no transition rule or grandfather clause. Under Section 25D(e)(8)(A), an expenditure is treated as made when installation is completed. If the installer wrapped up work on January 3, 2026, the expenditure counts as a 2026 expenditure and gets no credit, regardless of when you paid.² For new construction, the trigger is when the taxpayer first uses the completed structure.

Who Can Still Claim It

Two groups can still use the credit:

Homeowners whose systems were installed and operational on or before December 31, 2025. They claim the 30% credit on their 2025 return, filed in 2026.³
Anyone carrying forward unused credit from an earlier installation year. The credit is nonrefundable, so homeowners with low tax liability often couldn’t use the full 30% at once. Those unused amounts continue to roll forward against future tax years until fully applied.⁴

What Qualified as an Eligible Installation

The system had to be installed on a home in the United States where you actually lived. Primary residences and second homes both qualified, provided you used the property as a residence for part of the year and didn’t rent it out full-time. Landlords who installed solar on rentals they never lived in could not claim the credit.⁵

You had to own the equipment. Leased systems and power purchase agreements don’t qualify, because the third-party company that owns the panels claims the tax benefits itself. There is no income limit, but only new equipment counts; used or previously owned panels are not eligible.⁶

Which Costs the 30% Applied To

Qualifying expenses cover the full working system, not just the panels:

Solar electric property: panels, inverters, mounting hardware, and other components that generate electricity from sunlight.
Solar water heating systems certified by the Solar Rating and Certification Corporation or a comparable state-endorsed entity.³
Battery storage with a capacity of at least 3 kilowatt-hours installed in connection with the home.⁷
Labor for on-site preparation, assembly, original installation, and the wiring or piping that connects the system to the home.⁶

Solar roof tiles and shingles that both generate electricity and serve as roofing qualify. Ordinary roofing materials, structural elements like rafters and decking, and standard roof repairs don’t, even when the work was done to support the solar installation.

Rebates and Subsidies Reduce the Base

Utility rebates and public subsidies come off your project costs before you calculate the 30%. If your utility paid $2,000 toward the job, you subtract that first, whether the money went to you or straight to the contractor. Net metering payments for electricity you sell back to the grid do not reduce your qualified expenses.⁶

How to File: Form 5695 and Carryforwards

Claim the credit on IRS Form 5695, Residential Energy Credits. Solar electric costs go on line 1, solar water heating on line 2, and qualifying battery storage on line 5b. The form calculates the 30% credit, and the final amount flows to line 5a of Schedule 3 on Form 1040.⁸

Because the credit is nonrefundable, it can reduce your federal tax to zero but won’t generate a refund on its own. If you owe $4,000 and qualify for a $6,000 credit, the credit erases the $4,000 and the remaining $2,000 carries forward. That carryforward continues year after year until the full amount is used.³ Form 5695 handles the carryforward calculation too, and most tax software walks through it automatically once you indicate you have a prior-year residential energy credit balance.

Records to Keep

Hold onto the manufacturer’s certification statement for each major component, itemized contractor invoices that break out equipment and labor, and documentation of the exact date the system became operational. That in-service date is what determines your filing year and, now, whether you qualify at all.

The IRS generally has three years from the date you file to audit a return.⁹ If your credit is carrying forward across several years, keep the underlying installation records until three years after the return where you finally use the last of it. A disallowed credit means paying the underpaid tax plus a possible 20% accuracy-related penalty.¹⁰

1
Congress.gov. Text – HR 1 – 119th Congress (2025-2026)
2
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
3
Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
4
Congress.gov. Expiration and Carryforward Rules for the Residential Clean Energy Credit
5
Internal Revenue Service. Frequently Asked Questions About Energy Efficient Home Improvements and Residential Clean Energy Property Credits – Qualifying Residence
6
Internal Revenue Service. Residential Clean Energy Credit
7
ENERGY STAR. Battery Storage Technology Tax Credit
8
Internal Revenue Service. Form 5695 – Residential Energy CreditsSchedule 3 Form 1040 Additional Credits and Payments
9
Internal Revenue Service. How Long Should I Keep Records
10
Internal Revenue Service. Accuracy-Related Penalty