Tax Credits for Solar Panels: 30% Rate, Deadlines, and Carryover

Federal tax credits for solar panels are still claimable if your system was installed and running before January 1, 2026, but the 30% Residential Clean Energy Credit has been terminated for any expenditures made after that date.¹ If you installed a qualifying system in 2022 through 2025, you can still claim the credit on your return, and any portion you can’t use in one year carries forward.

What Happened to the Federal Credit

The One Big Beautiful Bill, signed into law on July 4, 2025, ended the Residential Clean Energy Credit for expenditures made after December 31, 2025.¹ The Inflation Reduction Act had originally set 30% through 2032, with a phase-down after that, but that schedule no longer applies.²

What matters for eligibility is when the system was placed in service, not when you signed a contract or made a payment. A system installed and operational by December 31, 2025, qualifies. A system that finished installation on or after January 1, 2026, does not, even if you paid a deposit years earlier.¹

Who Qualifies for Systems Placed in Service Before 2026

The rules are set in 26 U.S.C. § 25D.³ You need to own the equipment. Leasing panels from a third party disqualifies you, because the leasing company owns the system and takes any tax benefits.

The home must be in the United States and used as your residence. Both primary and secondary homes count, so a vacation house with panels is fine. A rental property you don’t live in is not eligible. If part of the home is used for business, only the personal-use portion of the cost qualifies, and heavy business use is excluded entirely.³

The equipment has to be new. Used panels, or a system relocated from another property, do not qualify.⁴

What Costs Count

Qualified expenses include the solar photovoltaic panels, labor for onsite preparation and installation, and the piping and wiring that connect the system to your home.⁵ Battery storage counts if the unit’s capacity is at least 3 kilowatt-hours.³

Solar roof tiles and solar shingles qualify because they generate electricity, even though they also act as roofing. Regular roofing materials and structural work do not qualify, even when a solar installer recommends them as part of the job.⁵

Several costs that feel like part of going solar are not covered:

Loan interest and origination fees if you financed the system.⁵
Tree removal or landscaping to improve sunlight.
Municipal permitting and utility interconnection fees.

How the 30% Credit Works

The credit equals 30% of your qualified costs for systems placed in service from 2022 through 2025.⁵ Spend $30,000 on an eligible installation and the credit is $9,000. There is no dollar cap on solar electric property, so a larger system with battery storage can generate a substantial credit.³

The credit is nonrefundable. It reduces the federal income tax you owe but will not generate a cash refund on its own. If you owe $5,000 in tax and hold a $9,000 credit, your bill drops to zero and the remaining $4,000 carries forward to the next year.⁴ The statute sets no time limit on the carry-forward, so you keep using it until it’s absorbed.

The carry-forward stays with you, not with the house. Sell the home before you’ve used the whole credit and the remainder still applies to your future returns. A buyer of your house cannot claim any part of a credit you earned.

How Rebates and Subsidies Change the Math

Not every dollar you spent counts toward the 30% calculation. Some incentives reduce your qualified expenses first.⁵

Utility subsidies for buying or installing the system are subtracted, whether paid to you or to the installer.
Manufacturer, distributor, or installer rebates tied to the cost of the property reduce your eligible costs.
Net metering payments for excess electricity sold back to the grid do not reduce your qualified expenses.
State tax credits generally do not reduce the federal calculation, though some state “rebates” may count as taxable income on your federal return.

An example: you paid $28,000 for a system and received a $3,000 utility rebate. Qualified expenses fall to $25,000, and the federal credit is 30% of that, or $7,500, not $8,400.

How to Claim the Credit

You report the credit on IRS Form 5695, Residential Energy Credits.⁴ Part I handles the Residential Clean Energy Credit. Enter your qualified expenses after subtracting any non-taxable rebates or subsidies. The calculated credit moves to Schedule 3 of Form 1040, then to the main 1040 or 1040-SR to reduce what you owe.

Before you file, gather:

Invoices and receipts showing the total system cost, broken down by equipment, labor, and other charges.
The date the system was placed in service, since that fixes the tax year.
A written manufacturer certification that the equipment qualifies. You don’t attach it to the return, but you have to keep it.⁴
Records of any utility rebates, manufacturer rebates, or government incentives.

Keep records for at least three years after filing the return that claims the credit.⁶ If you’re carrying the credit forward, hold them until at least three years after the last return that uses any of it.

Carrying Forward Unused Credit After 2025

If your 2025 or earlier installation produced more credit than your tax liability could absorb, the unused amount doesn’t disappear when the program ends. File Form 5695 for each following year to apply the carry-forward against that year’s tax, even though you aren’t installing anything new. The 2025 instructions confirm that unused 2025 credit carries into 2026.⁴

You don’t need to still own the home. Sell in 2026 with $3,000 of credit left, and that $3,000 remains yours to use on your 2026 return and beyond.

State and Local Incentives Still Available

The end of the federal credit doesn’t wipe out every incentive. Roughly 32 states offer some form of property tax exemption or exclusion for solar, so a system’s added value doesn’t drive up your property tax bill. Some states run their own income tax credits, sales tax exemptions on solar equipment, or rebate programs.

Net metering, which pays you for excess electricity your panels send back to the grid, is still offered through many utilities. Rates vary by state and utility, and the value can meaningfully shorten a payback period.

State programs change often. Check with your state energy office or the Database of State Incentives for Renewables and Efficiency (DSIRE) for what’s current in your area.

1
Internal Revenue Service. FAQs for Modification of Clean Energy Credits Under Public Law 119-21
2
Department of Energy. Solar Investment Tax Credit – What Changed
3
Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
4
Internal Revenue Service. Instructions for Form 5695 (2025) – Residential Energy Credits
5
Internal Revenue Service. Residential Clean Energy Credit
6
Internal Revenue Service. How Long Should I Keep Records