The federal solar energy tax credit for homeowners ended for systems installed after December 31, 2025. The One Big Beautiful Bill, signed on July 4, 2025, cut off the 30% Residential Clean Energy Credit under Section 25D of the Internal Revenue Code, replacing the previous 2034 phase-out with a hard deadline.1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21 If your installation was completed by that date, you can still claim the credit on your 2025 return filed in 2026. If you claimed the credit in an earlier year and had more credit than tax owed, the unused balance keeps rolling forward until you use it up.
What the New Law Changed
Under the Inflation Reduction Act of 2022, the Residential Clean Energy Credit was set at 30% for systems placed in service through 2032, stepping down to 26% in 2033 and 22% in 2034. That schedule is gone. The One Big Beautiful Bill rewrote the termination provision of Section 25D so that no credit is available for any expenditures made after December 31, 2025.2Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
The timing rule is strict. An expenditure is treated as “made” when installation of the equipment is completed. Panels ordered, paid for, or partially installed in 2025 but not finished by December 31 do not qualify. For solar on new construction, the expenditure is treated as made when you first begin using the completed home.1Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21
Who Can Still Claim the Credit
Two situations still produce a solar credit on returns filed in 2026 or later.
You finished a qualifying installation by December 31, 2025. The 30% rate applies to your total eligible project costs, and you claim it on the 2025 return you file in early 2026. This is a first-time claim on Form 5695.
You have unused credit from a prior year. The Residential Clean Energy Credit is nonrefundable: it can zero out your federal tax bill but cannot generate a refund on its own. Whatever portion of the credit you couldn’t use in the year of installation rolls forward to the next year, and the next, until it’s fully applied.3Internal Revenue Service. Residential Clean Energy Credit
The carryforward matters most for people who put in large systems. A $30,000 installation generated a $9,000 credit. If federal tax owed that year was only $5,000, the remaining $4,000 didn’t disappear; it stayed available for the next return and any return after that until used up. Worth checking your last few Form 5695 filings if you’re not sure whether a balance is still sitting there.
What Counted as a Qualifying Installation
The eligibility rules that governed the credit at the time of installation still govern any claim you make now, including carryforwards.
The Home and the Taxpayer
The system had to be installed at a home in the United States where you actually live. Primary residences and second homes both qualified, provided you lived in the second home for part of the year and didn’t rent it out. Rental properties where the owner doesn’t reside were excluded. The equipment had to be new; used or relocated systems did not qualify. Only the person who paid for the system could claim the credit.3Internal Revenue Service. Residential Clean Energy Credit
Running a business from the home didn’t automatically disqualify you. If business use of the home stayed at 20% or below, you got the full credit. Above 20%, the credit was limited to the share of expenses tied to personal use. A home used exclusively for business didn’t qualify at all.3Internal Revenue Service. Residential Clean Energy Credit
What Expenses the 30% Applied To
The credit covered more than just the panels. Qualifying costs included solar photovoltaic panels, solar water heaters certified by the Solar Rating and Certification Corporation or a comparable state-endorsed entity,4ENERGY STAR. Solar Energy Systems Tax Credit battery storage with a capacity of at least 3 kilowatt-hours (whether paired with panels or standalone, with standalone storage becoming eligible starting in 2023), wiring, inverters, mounting hardware, and the labor for on-site preparation, assembly, original installation, and connecting the system to the home.3Internal Revenue Service. Residential Clean Energy Credit
Permitting and inspection fees generally came in as part of installation costs. Loan interest and origination fees did not. If you financed the installation, the 30% applied to the full system cost but not to the financing charges themselves.3Internal Revenue Service. Residential Clean Energy Credit
Ordinary roofing materials and structural work did not qualify, even when done to prepare for solar. Solar shingles and solar roof tiles were the exception, because they generate electricity while also serving as roofing.
Rebates That Reduced the Base
Utility company rebates and subsidies for buying or installing the system had to be subtracted from qualifying expenses before applying the 30%, whether the utility paid you directly or paid the installer on your behalf. State tax credits generally did not reduce the federal credit, though claiming a state credit lowers the state tax you can deduct federally, which indirectly raises your federal taxable income. Net metering payments from your utility for electricity sent back to the grid did not reduce qualifying expenses.3Internal Revenue Service. Residential Clean Energy Credit
How to Claim It or Carry It Forward
Whether this is a first-time claim for a 2025 install or another year of applying a carryforward, the mechanics run through IRS Form 5695, Residential Energy Credits. Solar electricity costs go on Line 1 of Part I. The form totals your qualifying expenses, applies the 30% rate, compares the result against your tax liability, and produces a usable credit for the year plus any amount that carries forward.5Internal Revenue Service. Instructions for Form 5695 (2025)
Form 5695 attaches to your Form 1040 (or 1040-SR or 1040-NR). The final credit figure flows to Schedule 3, Line 5a, and from there reduces your total tax.6Internal Revenue Service. Form 5695 – Residential Energy Credits Most tax software handles this if you answer the residential energy questions. Paper filers need to enter any prior-year carryforward on the current year’s Form 5695 before transferring the result to Schedule 3.
Records to Hold Onto
You’ll want to keep the manufacturer’s certification statement, itemized receipts that break out hardware, labor, and other expenses, system specifications showing kilowatt capacity, and documentation of the installation completion date. With the December 31, 2025, cutoff now hard, proof of when installation was finished is the piece an IRS reviewer is most likely to want to see.
The IRS generally requires records supporting a credit for at least three years after filing.7Internal Revenue Service. Topic No. 305, Recordkeeping For carryforwards spanning multiple returns, that clock effectively restarts with each return that uses part of the balance. Keep the installation file until the credit is fully used and then three more years.
Leased Systems and Power Purchase Agreements
If you leased solar panels or signed a power purchase agreement, you were never eligible for this credit and are not eligible now. The credit belonged to whoever owned the equipment. Under a lease or PPA, that’s the solar company, which may have claimed the commercial investment tax credit under Section 48 on its own return. Homeowners in those arrangements have nothing to claim on Form 5695 for those panels, regardless of when they went up.
New Solar Installations in 2026
For systems installed in 2026 or later, there is no federal residential solar tax credit. The 30% credit that offset a large share of installation costs from 2022 through 2025 does not apply to new projects. State programs, local incentives, and utility rebates continue in some areas and are worth checking, but the federal piece is closed for new installations. For anyone with a carryforward balance from an earlier install, that balance is still good and still reduces federal tax owed in 2026 and after until it runs out.