What the Credit Covers
The federal solar tax credit — officially called the Residential Clean Energy Credit — lets you deduct 30%. It was created under IRC Section 25D and expanded by the Inflation Reduction Act (IRA) of 2022.
Here's what counts toward the 30% credit = $7,500
Net cost after credit: $17,500
Here are more examples at different price points:
| System Cost | Tax Credit (30% — the credit is non-refundable, meaning it reduces taxes owed but won't generate a refund by itself
New homeowners: If you bought a house that already had solar panels, you may qualify for the credit as long as the equipment was never claimed before. You'll need documentation from the seller. Step-by-Step: How to Claim the CreditClaiming the credit on your tax return is straightforward. Here's exactly what to do: 1
Gather Your PaperworkCollect your contractor's receipt, equipment invoices, and the Manufacturer's Certification Statement (this proves the equipment qualifies). Keep everything for at least 3 years after you file. 2
Complete IRS Form 5695Fill out Form 5695 — Residential Energy Credits. In Part I, enter your total solar costs on line 14 ("Qualified solar electric property expenditures"). The form will multiply by 30% for the year. You claim $4,000 on your current return, and the remaining $3,500 rolls to next year. You do not lose it. 📐 Carry-Forward ExampleTotal credit: $7,500 Year 1 taxes owed: $4,000 Credit claimed in Year 1: $4,000 Carry forward to Year 2: $3,500 You keep carrying it forward until the full amount is used. This carry-forward rule means you don't need to owe $7,500 in a single year to get the full benefit. Even if your tax bill is small, the credit keeps rolling year after year until it's all used up. This is tracked on Form 5695, line 25 — "Credit carryforward from 2025 to 2026." Your tax software handles this automatically, but make sure you report it every year until the credit is exhausted. Stacking with State CreditsIn most states, you can stack the federal 30% applies to gross cost | |
|---|---|---|
| South Carolina | 25% state tax credit (up to $3,500/year, 10-year carryforward) | Federal + state combined can exceed 50% |
| Arizona | $1,000 state tax credit | Flat dollar credit stacks fully |
| New York | 25% state credit (up to $5,000) | Federal credit applies before state reduction |
Key point: The federal 30% base. Check your state-specific solar incentives page for details.
2032 Expiration & Phase-Down Schedule
Current rebates rate won't last forever. Under the Inflation Reduction Act, the credit follows this schedule:
| Year | Credit Rate | Example on $25,000 System |
|---|---|---|
| 2022–2032 | 30% credit with state credits?
Yes, in most cases. States like Massachusetts, South Carolina, and Arizona offer solar tax credits or rebates that stack on top of the federal credit. A few states limit stacking — check your state's rules. The federal credit is based on gross cost before state incentives, so you generally get the best of both worlds. 🔢 See exactly how much you'll savePlug your monthly bill into our free solar calculator — it factors in the incentives automatically. |