Solar Tax Credit Going Away: Deadline, Eligible Costs, Carryover

The federal solar tax credit is going away at the end of 2025. The Residential Clean Energy Credit under Section 25D of the Internal Revenue Code will not apply to any expenditures made after December 31, 2025, following passage of the One Big Beautiful Bill Act on July 4, 2025.¹ If your solar system is fully installed on or before that date, you can still claim 30 percent of the cost against your federal income tax. If installation finishes even one day later, the credit is gone.

The Deadline Turns on Installation, Not Payment

This is where homeowners most often get caught. Section 25D treats an expenditure as “made” when the original installation of the item is completed, not when you signed the contract or wrote the check. The IRS has stated the rule plainly: “If installation is completed after December 31, 2025, the expenditure will be treated as made after December 31, 2025, which will prevent the taxpayer from claiming the section 25D credit.”²

Paying in full during 2025 does not preserve the credit if your installer doesn’t finish the job until January. The system has to be complete and operational.

New construction follows a slightly different rule. When you buy or move into a newly built home with solar already installed, the expenditure is treated as made when your original use of the home begins. Moving in after December 31, 2025 means no credit, no matter when the builder put the panels up.³

What You Can Still Claim for a 2025 Installation

The credit is 30 percent of your total qualified costs. On a $20,000 system, that’s $6,000 shaved off your federal tax bill.⁴

Qualifying equipment is broader than solar panels alone. It includes:

Solar electric (photovoltaic) panels that generate electricity for the home
Solar water heaters, where the water is used inside the home
Battery storage systems with a capacity of at least three kilowatt-hours, whether or not they’re paired with solar⁵
Small wind turbines and geothermal heat pumps installed at the residence

Your cost basis covers the equipment plus labor for onsite preparation, assembly, and original installation.¹ You must own the system outright, whether you paid cash or financed it with a loan, and the property must be your primary or secondary residence in the United States. Leased systems and third-party power purchase agreements are not eligible.⁴

Costs the IRS Will Not Count

Traditional building components that serve a roofing or structural function are excluded, even when they physically support the panels. Roof trusses and standard shingles don’t qualify. Solar roofing tiles and solar shingles do, because they generate electricity themselves.⁴

The statute allows only labor “properly allocable to the onsite preparation, assembly, or original installation” of the energy property.¹ Structural roof reinforcements, main electrical panel upgrades, and general home improvements that happen alongside a solar project sit in a gray area; the statute is silent on them and the IRS has not issued definitive guidance. The safer approach is to claim only costs directly and exclusively tied to the solar equipment. Keep your sales contract, a finalized invoice matching the amount you claim, and a detailed materials list.

Rebates That Reduce Your Credit

Utility rebates or subsidies you receive for buying or installing clean energy property must be subtracted from your cost basis before you calculate the 30 percent, whether the payment goes to you or to your installer on your behalf.⁴

Net metering payments work differently. Money your utility pays you for electricity you sell back to the grid does not reduce your qualified expenses; it’s treated as income from electricity sales, not as an adjustment to your purchase price.⁴

How to Claim It

For the 2025 tax year, use IRS Form 5695 (Residential Energy Credits). Enter your total qualified costs in Part I, multiply by 30 percent, and carry the result to Schedule 3 of your Form 1040, where it reduces your tax.³ The system must have been fully installed and operational during 2025.

The credit is nonrefundable. It can bring your federal tax down to zero, but it won’t produce a check from the IRS. If you owe $4,000 and your credit is $6,000, your tax bill goes to zero and the remaining $2,000 doesn’t get refunded. It carries forward.

Unused Credit Still Carries Forward

Any credit amount that exceeds your tax liability rolls to the next tax year. The statute says the excess “shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such succeeding taxable year.”¹

The One Big Beautiful Bill Act did not change these carryforward rules. Homeowners who completed qualifying installations by the end of 2025 can keep using unused credit amounts in future tax years until the balance is fully exhausted. A Congressional Research Service analysis confirms that “carryforwards may be utilized indefinitely until a taxpayer has used the entire credit amount.”⁶ Keep records of the unused balance and continue reporting it on Form 5695 each year until it’s gone.

What Remains After 2025

For homeowners, no federal residential solar tax credit exists for systems installed in 2026 or later. The same law also ended the Energy Efficient Home Improvement Credit under Section 25C and the clean vehicle credits under Sections 30D and 45W.² Commercial and utility-scale clean energy investment credits under Sections 48E and 45Y were curtailed as well, but those apply to businesses and energy developers, not homeowners installing panels on their own roof.

State and local incentives are the only government subsidies still in play for new installations. These programs vary widely and change frequently, so check your state energy office for what’s currently on offer.

1
Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
2
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
3
Internal Revenue Service. Instructions for Form 5695 – Residential Energy Credits (2025)
4
Internal Revenue Service. Residential Clean Energy Credit
5
ENERGY STAR. Battery Storage Technology Tax Credit
6
Congress.gov. Expiration and Carryforward Rules for the Residential Clean Energy Credit