solar tax credit

Everything you need to know about the federal solar tax credit

The investment tax credit (ITC), also known as the federal solar tax credit, allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes. The 30 percent tax credit will be available until 2033, at which point it will drop to 26 percent. The ITC applies to both residential and commercial systems, and there is no cap on its value. The average EnergySage Marketplace shopper saves nearly $6,150 on the cost of going solar as a result of the ITC.

Disclaimer: This article is intended to provide an informational overview of the Federal Solar Tax Credit for interested homeowners. It is not intended to serve as official financial guidance. Readers interested in installing solar products should use their best judgment and seek advice from a licensed tax professional before making any purchase or investment.

Key takeaways

  • In 2022, the ITC allows both homeowners and businesses to claim 30 percent of their solar system costs from your taxes.
  • The 30 percent tax credit will last for 10 years until 2033, at which point it will drop to 26 percent.
  • The credit rolls over as long as the ITC is in effect, so you don’t have to have enough tax liability to use it all in one year.
  • You must own your solar system to take advantage of the ITC – if you signed a solar lease or PPA, you won’t receive this benefit.
  • Use the EnergySage Marketplace to compare solar system quotes and see how much you can save by going solar.

What you’ll learn in this article

What is the federal solar investment tax credit?

The ITC was originally established by the Energy Policy Act of 2005 and was set to expire at the end of 2007. Thanks to the popularity of the ITC, and its success in supporting the United States’ transition to a renewable energy economy, Congress has delayed its expiration date multiple times, including most recently in August 2022 as part of the Inflation Reduction Act, extending the ITC at 30 percent for 10 additional years. Now, the solar investment tax credit is available to homeowners in some form through 2034. Here’s a timeline of the ITC:

  • 2016 – 2019: the energy tax credit remained at 30 percent of the cost of the system.
  • 2020 – 2021: owners of new residential and commercial solar could deduct 26 percent of the cost of the system from their federal income taxes.
  • 2022 – 2032: owners of new residential solar can deduct 30 percent of the cost of the system from their taxes. Commercial solar systems will also be eligible for 30 percent until 2025, at which point the U.S. Department of Treasury will determine if the ITC will continue for commercial systems.
  • 2033: owners of new residential solar can deduct 26 percent of the installation costs of the system from their taxes.
  • 2034: owners of new residential solar can deduct 22 percent of the installation costs of the system from their taxes.
  • 2035: there is no federal credit for residential solar energy systems starting this year.

UPDATE: Congress passed the Inflation Reduction Act, which is why the ITC jumped back to 30 percent through 2032. Importantly, any system installed in 2022 qualifies for the 30 percent tax credit, even if it was installed before the Inflation Reduction Act was passed.

How the solar tax credit works

As long as you own your solar energy system, you are eligible for the solar investment tax credit. Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credit amount into future years for as long as the tax credit is in effect (so, through 2034 for residential energy systems as it stands today). However, remember that if you sign a lease or power purchase agreement (PPA) with a solar installer, you are not the owner of the system, and therefore cannot claim the tax credit. Lastly, it’s important to note that there is no income limit on the ITC program, so taxpayers in all income brackets may be eligible.

Solar tax credit eligibility checklist for 2022

If you’re not sure the ITC applies to you and your home, here is a checklist of criteria to keep in mind: 

  • Your solar photovoltaic (PV) system was installed between January 1, 2006 and December 31, 2034. 
  • Your solar PV system was installed on your primary residence or secondary residence in the United States. 
  • For an off-site community solar project, the electricity generated is credited against, and does not exceed, your home’s electricity consumption. The IRS allows a taxpayer to claim a section 25D tax credit for purchasing a portion of a community solar project. 
  • You own the solar PV system, meaning you purchased it outright or financed it with a loan. You did not sign a lease or PPA. 
  • Your solar PV system is new or being used for the first time – the credit can only be claimed on the original installation of the solar equipment. For instance, if you bought a house that came with a solar panel system already installed, you would not be eligible for the credit.

What’s covered by the tax credit? 

Homeowners who leverage the 30 percent ITC from the federal government can plan to see the following expenditures covered: 

  • Cost of solar panels
  • Labor costs for installation, including permitting fees, inspection costs, and developer fees 
  • Any and all additional solar equipment, like inverters, wiring, and mounting hardware 
  • Energy storage systems rated three kilowatt-hours (kWh) or greater (starting in 2023). 
  • Sales taxes on eligible expenses  

When and for how long can I claim the solar tax credit?

If you’re eligible for the ITC, but you don’t owe any taxes during the given calendar year, the IRS will not refund you with a check for claiming the credit. The 30 percent ITC is not refundable. However, according to the Department of Energy, you can carry forward the unused amount to the next year. Therefore, if you have a tax liability next year, but don’t have any this year, you can still claim the credit.

Using the federal tax credit in combination with other incentives 

Aside from the ITC, there are several other solar incentives to consider like rebates, state-sponsored programs, and other tax incentives depending on where you live. While some of these financial incentives may impact the ITC, others can be combined to lower the cost of going solar. Here’s what you need to know about combining solar incentives with the federal ITC: 

  • Rebates from your utility company: as a general rule of thumb, subsidies from your utility company will be excluded from income tax returns due to an exemption in federal law. So, in this case, any utility rebate for installing solar would be subtracted from your system cost before you can calculate the tax credit. 
  • Rebates from the state: these types of rebates typically do not reduce your federal tax credit.
  • State tax credit: if you get any state tax credit for your solar power system (a common one is a state property tax credit), it will not decrease your federal tax credits. However, keep in mind that getting a state tax credit means that your taxable income on federal returns will be higher since you will have less state income tax to deduct. 
  • Payments from renewable energy certificates: any time you receive money from selling renewable energy certificates, it will likely be considered taxable income that will increase your gross income. But, it will not reduce your tax credit.

How do I claim the federal solar tax credit?

You claim the investment tax credit for solar when you file your yearly federal tax return. If you have an accountant, remember to let them know you’ve gone solar in the past year, or if you file your own taxes, you can use EnergySage’s step-by-step guide on how to claim the solar ITC. You’ll need to fill out IRS Form 5695 in addition to a few other tax forms to make sure you get your tax credit.

Impact of the solar tax credit

As the United States races to achieve rigorous clean energy benchmarks, the federal policies and incentives to get us there have heightened. On both a distributed and utility-scale level, solar deployment has grown quickly across the country. The federal tax credit has given businesses, homeowners, and tax payers the opportunity to drive down solar costs while increasing long-term energy stability. The ITC has been a driver of huge success, giving us a stronger and cleaner future: in fact, according to the Solar Energy Industries Association (SEIA), it has helped the U.S. solar industry expand by over 10,000 percent! Learn more about how solar panel costs and efficiency have changed over time

Frequently asked questions about the solar tax credit 

Calculating the cost of going solar can be complicated as it is, let alone incorporating other financial incentives and tax credits into your estimate. Check out a few other commonly asked questions related to the ITC for more clarification: 

How much is the federal solar tax credit for in 2022?

In 2022, the federal solar tax credit will deduct 30 percent of the cost of a system for eligible residential and commercial tax payers. The ITC will disappear for residential systems starting in 2035.

Is the solar tax credit a one-time credit? 

Right now, the ITC is a one-time credit. But, you may carry over the excess credit to the next year if you can’t use it all when you file. For example, if you only owed $6,000 in taxes but received the $6,200 solar tax credit, you’d pay $0 in taxes for the tax year when you placed the claim. Then, you’d also get to reduce next year’s taxes by the remaining $200. 

Will the solar tax credit increase my tax refund? 

The solar tax credit will not increase your tax refund. Rather, The ITC amount is applied against your tax liability, or the money you owe the IRS. 

Start your solar journey today with EnergySage

EnergySage is the nation’s online solar marketplace: when you sign up for a free account, we connect you with solar companies in your area, who compete for your business with custom solar quotes tailored to fit your needs. Over 10 million people come to the EnergySage Marketplace each year to learn about, shop for, and invest in solar. Sign up today to see how much solar can save you on your electricity bills.

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About Jacob Marsh

Jacob is a researcher and content writer at EnergySage, where he's an expert on current issues–and new technology!–in the solar industry. With a background in environmental and geological science, Jacob brings an analytical perspective and passion for conservation to help solar shoppers make the right energy choices for their wallet and the environment. Outside of EnergySage, you can find him playing Ultimate Frisbee or learning a new, obscure board game.

63 thoughts on “Everything you need to know about the federal solar tax credit

  1. TaxCreditQuestion

    I heard that with the passing of the Inflation Reduction Act, they placed an income limit for EV cars where if you make over $150k, you do not get any of the credit. Is there a similar income cutoff for the solar tax credit?

    1. Xiaolong

      From the article: “it’s important to note that there is no income limit on the ITC program, so taxpayers in all income brackets may be eligible.”

  2. Terrence W Brotherton

    I heard that buried within the foot-thick Inflation Reduction Act is text increasing Tax rebate to 40% for installation of American made solar panels. Is this true?

  3. Indianajs

    I live in a condominium building with 25 units. We each own 1/25th of the common space (flat roof in this case). If we install solar, to power the lights, etc in the common areas, could I pay for it, take the tax credit and bill the HOA for the cost of the system? When paid off, the HOA would own the system.

  4. Kent Wimmer

    I installed a PV system in 2020 and received a 26% fed solar tax credit. If I add modules to that PV system, am I eligible to receive another the solar tax credit for the cost of installing those additional modules in 2022 or 2023?

  5. Suzanne Rostro

    I am living in my daughters home and bought solar for it who would be eligible to claim the credit

  6. Lindsay

    My husband and I just signed for solar for our home. Part of the sales pitch from the 3 companies we met with was around the write off we’d get on our federal taxes… Basically the solar costs xxx now per month, and will continue at that rate IF once you receive your tax refund and send it to us… If you don’t send the tax refund… the monthly cost will go up to yyy. If there is no actual refund and it’s just a relief on liability – I don’t see how we’ll get that lump sum to send in to keep our lower monthly payments. Am I understanding this correctly? Feeling like I’m being scammed a bit… all 3 companies said this.

    1. SolarSpence

      If you pay taxes in your salary throughout the year, you will receive a check. If you pay taxes on non-taxes income throughout the year(independent contractors) you will directly lower the amount you owe the Federal government in income tax. The 1st 17 months of the solar loan are your introductory rate assume you buy-down the system.
      More simply, either finance the system at the higher monthly payment and keep the tax credit incentive, OR reinvest the tax credit into your loan and keep the payment lower. This must be done in the first 17 months, your loan will re-amortize one time in month 18.

      1. Jacob

        Are you saying you can receive the tax credit say as a direct deposit? I’m very confused on this because I know you can’t get a “check” for the ITC. I was under the impression that the ITC is not something that you can “cash out” on; is that correct?

        1. Tom Lammie

          You can “cash out” to the degree in which you paid income taxes. So unless you truly pay “0” in income tax over the course of the year, the fed and state governments will refund your tax money up to the amount of the solar credit.

    2. Carla

      I have the same experience and feeling abouit the tax situation. It is SUPPOSED to be a benefit for us, but whn we do not get back enough in taxes to pay down the loan, the price will go up to basically what I pay now for electricity. Feels like a scam, but with the cost of electricity rising I am hoping it works out for us. We also had the same info from all 3 companies we met with as well.

      1. Jacque Jecker

        Here is where you need to exercise some spending control. If you hold on to the tax refund you get back from the IRS, AND bank the savings from what you would have been paying for your electric bill, you will be able to just about apply the amount of your credit to the loan. In my case, I was given 18 months to apply the amount of the credit to the loan. That took me through two rears of getting back my entire tax bill for those two years. That and the difference of the amount of the loan payment for the solar and what I would have paid for power normally, gave me almost enough to apply the credit amount to the loan. I am retired and on fixed income so I don’t pay much Federal Tax. People who are still working and paying more FIT will have an easier time of it because they will be getting back a larger tax refund from Uncle Sam. You have to make yourself not spend those tax refunds etc. Put them in a separate account until your time limit to make the application to the loan.

    3. Wayne Brechtel

      It’s a tax credit that you’ll receive, meaning it’s not a write off at all. As long as your total tax liability for the year is greater than the 30% ITC amount then you should be able to receive it all for that year you went solar. And if not, you can get the remaining amount in the following years. It has nothing to do with what owes at the end of the year, it has to do with what one paid throughout the entire tax season.
      So if you paid throughout the year $15,000 and then at the end of the year you owed $2,000 which means you underpaid during the year. Now you would have officially paid $17,000 in total for the year normally, using this example.
      Let’s say your solar costs $40,000 and 30% of that is $12,000. That means you’ll get it all back that year since $17k is higher than $12k.
      The way it would look on your actual taxes is you owe $2k and have a $12k Solar credit, which therefore means in this example that you’ll get a refund of $10,000. And obviously the reason it is $10k and not $12k is because you were short $2k which would have been what you owed.
      Same example is if you owed nothing at the end of the year and they owed you $0, then you’d get the $12k ITC or the Investment tax credit.
      And lastly if they owed you $2k at the end of the year because you overpaid throughout the year, then this would mean you would have paid a total of $15k minus the $2k refund you are getting, and now you put in $13k total for the year. This is lever than the $12k ITC, so you’d get it all back still for that year. And the total expected refund would be $12k for the solar plus $2k for the normal refund, or $14k total.
      See, pretty simple.

      1. Arnold V

        Hey Wayne, everything you said made complete sense besides the part where you said
        “Same example is if you owed nothing at the end of the year and they owed you $0, then you’d get the $12k ITC or the Investment tax credit. ”
        Just to clarify, this only applies to the unique scenario in which you didn’t underpay or overpay on your federal taxes throughout the year, right? And only in THIS unique scenario would you get an actual refund on your tax credit? Because I thought that the ITC is blatantly NOT refundable, can only go against tax liabilities? So you CANNOT “get the $12k ITC” like you previously mentioned.

  7. Peter Valiante

    If construction on a new principal residence is begun in 2022 with payments for a solar system being made in that year, but the house will not be complete and lived in until 2023, will any credit be allowed for 2022, or will all costs be accumulated and applied to 2023 taxes (the extent available under 2023 rules)?

  8. Mr.Jackson

    They told me and my wife that we can get the $9.000 and fix some work around our home. But when the system was completely they said they never told us that so how do I get our $9.000.cause someone in the company said if we ask for it.then we should have got it.what do we do now.please help us

    1. Julie Presley

      I purchased the solar system in 2021 and it was installed and turned in 2022. Can I claim the credit on my 2021 tax return or do I have to wait to claim with my 2022

    2. Fran Brown

      This is the tax credit explained in the site listed below. There is no refund, only credit against taxes you owe. I stopped paying federal taxes for 2022 and will apply the solar credit to what I may owe. If I don’t use all of the credit, I will apply to 2023 and again not pay taxes for 2023. It is easy to figure what your tax liability by looking at what you owed the previous year if your income is about the same. Or check the IRS tax tables.

    3. SolarSpence

      Likely the $9000 was included in the cost of the financing. If it was included in the sale, the company would need to reimburse you the money or pay $9000 for work done. If it wasn’t calculated into the financing of your loan then you have nothing to worry about. Essentially getting $9000 means you are borrowing the $9000 from yourself in the form of the loan and paying interest on it, (which is a write off) and also receiving 26% back of the finance amount in a tax credit.


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