The Residential Clean Energy Credit is not refundable. It can reduce your federal income tax to zero, but the IRS will not send you a check for any amount left over. What the statute does give you is a carryforward: unused credit rolls into the next tax year, and the year after that, until you’ve used it all. So while the answer to “is the residential energy credit refundable” is no, in practice you don’t lose the excess — you just collect it over time.
One development changes the timing question for anyone reading this now. The One Big Beautiful Bill Act (Pub. L. 119-21), signed July 4, 2025, terminated the credit for expenditures made after December 31, 2025.1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21 New installations in 2026 no longer qualify. But if you placed eligible equipment in service between 2022 and 2025, the carryforward rules below are how you collect the full benefit.
What Nonrefundable Actually Means
Section 25D sits within Subpart A of the Internal Revenue Code, the subpart covering nonrefundable personal credits.2Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit A nonrefundable credit offsets your federal income tax dollar for dollar, but only down to zero. Owe $3,000 in tax with a $9,000 credit? The credit erases the $3,000 and stops. No check for the remaining $6,000.
That is the whole difference between this credit and something like the Earned Income Tax Credit, where the government pays you whatever’s left after your tax hits zero. Section 25D does not work that way. It never generates a payment.
The gap matters most when the project cost is large relative to your tax bill. A $30,000 solar installation produces a $9,000 credit at 30%. A household with a $4,000 annual federal tax bill would need more than two years of tax liability to absorb it. That’s the situation the carryforward is built for.
How the Carryforward Works
Section 25D(c) provides that when your allowable credit exceeds your tax liability for the year (after other nonrefundable personal credits are applied), the excess carries to the next tax year and is added to whatever credit you’re entitled to claim then.2Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit That cycle repeats year after year until nothing is left.
The IRS confirmed for the 2025 tax year that taxpayers may “carry the unused portion of the residential clean energy credit to 2026.”3Internal Revenue Service. Instructions for Form 5695 (2025) The 2025 termination only stops new expenditures. It does not cancel credit already earned on installations placed in service from 2022 through 2025. A carryforward balance entering 2026 applies against your 2026 tax; anything still unused rolls into 2027, and so on.
No Expiration Date
The statute sets no deadline on how long you can carry the credit forward. As long as some balance remains from a qualifying installation, it keeps rolling. The practical limit is your annual tax liability: the credit chips away until the balance reaches zero.
A Multi-Year Example
Say you installed a $28,000 solar system in November 2025. Your 30% credit is $8,400. Your 2025 federal income tax, after other nonrefundable credits, is $3,200. You use $3,200 of the credit in 2025, leaving $5,200. On your 2026 return, your tax liability is $3,500; you apply $3,500 of the carryforward, leaving $1,700. That $1,700 carries into 2027 and offsets tax that year. Across three returns, the full $8,400 gets used. Nothing is refunded, and nothing is lost.
What Still Qualifies After 2025
To use a carryforward, the underlying installation has to have been eligible when it was placed in service. The credit covered 30% of the cost of solar electric panels, solar water heaters, small wind turbines, geothermal heat pumps, battery storage with capacity of at least 3 kilowatt-hours, and fuel cell property in a home you used as a residence in the United States.4Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy CreditResidential Clean Energy Credit The placed-in-service date on your documentation determines which tax year the credit belongs to, and that year’s return is where the carryforward chain begins.
One boundary worth flagging for anyone thinking ahead to a sale: claiming the credit reduces the basis increase in your home. Section 25D(f) provides that when you receive a credit for an expenditure, your home’s basis rises by the amount spent minus the credit claimed.5Office of the Law Revision Counsel. 26 US Code 25D – Residential Clean Energy Credit Spend $30,000, claim $9,000, and basis goes up by $21,000. In practice the Section 121 exclusion ($250,000 single, $500,000 married filing jointly) absorbs most residential gains, but the reduction is real.
Filing to Preserve the Carryforward
You claim the credit and track the carryforward on IRS Form 5695 (Residential Energy Credits). Part I handles the Residential Clean Energy Credit and its carryforward calculation.3Internal Revenue Service. Instructions for Form 5695 (2025) For the 2025 tax year, Line 16 records any unused credit carried into 2026. File Form 5695 even if the whole credit exceeds your liability that year — that filing is what documents the balance you plan to use later.
The credit figure on Form 5695 flows to Schedule 3 of Form 1040 or 1040-SR, which reduces your final tax. If you’re filing for 2026 and only applying a carryforward from an earlier year, you’ll still use Form 5695 to report and draw down the balance. Do the same each year until the credit is exhausted.
Keep the receipts, invoices, and the manufacturer’s certification statement confirming that your equipment met the Section 25D requirements. If the IRS questions the return years down the line — while you’re still working through the carryforward — those records are what prove the original credit was valid.