What Is The Solar Investment Tax Credit?

NOTE: Early in July President Trump signed into law the budget reconciliation bill known as “The Big Beautiful Bill.” The new law contains substantial changes to the Federal tax incentives available to people installing solar at their home or business. The Treasury Department has been tasked with developing and providing the details of the new legislation as there are many unanswered questions about the implementation of the law. For current information regarding incentives, please click here.

The federal government, as well as many states, offer incentives to homeowners and businesses to defray the cost of installing solar panels on their property. One of the largest of these comes in the form of a federal income tax credit. The Solar Investment Tax Credit (ITC) is a 30% credit for individuals installing solar systems on residential or business properties.

What is a Tax Credit?

Tax credits are dollar-for-dollar reductions on your federal income taxes. It is not the same as a tax deduction — it is better. Unlike a tax deduction, which lowers your taxable income, a tax credit directly lowers your tax liability. For example, if you owe $5,000 in federal taxes and qualify for a $3,000 solar tax credit, you’ll only owe $2,000.

Also, unlike a grant, the money won’t arrive as a separate check. It will simply be calculated with your taxes, either decreasing the amount that you owe or increasing the size of your refund.

Important to note: The solar tax credit is nonrefundable. This means you can’t get more money back than you owe in taxes. However, if you don’t use all the credit in one year, you can roll the remaining amount over to the next year (through 2034). For further details and eligibility requirements on available tax credit information for solar, please consult with your tax advisor.

What Expenses Qualify For the Solar Investment Tax Credit?

To get the credit, you must own (not lease) your solar system. Eligible expenses include:

• ✅ Solar photovoltaic (PV) panels
• ✅ Inverters
• ✅ Mounting equipment
• ✅ Labor and permitting costs
• ✅ Battery storage systems (minimum 5 kWh capacity)
• ✅ Necessary electrical upgrades to accommodate your system

What Expenses Are Not Included?

Tree trimming, roof repairs or replacements unrelated to solar, and systems under lease or Power Purchase Agreements (PPAs) do not qualify. Also, some solar incentives or rebates, such as those from a public utility, must be subtracted from the qualifying expenses when calculating the amount of your tax credit.

How Do You Claim the Solar Investment Tax Credit?

You’ll need to complete IRS Form 5695 and attach it to your federal tax return. Most solar installers will provide a paid-in-full invoice, which you’ll need for your documentation.

While it’s not legally required, it’s wise to consult a tax professional to ensure eligibility and to verify everything is filled out correctly, especially if you plan to carry the credit over into future tax years.

When Can You Claim It?

You can claim the credit in the year your system receives “Permission to Operate” (PTO) from your utility company — not when you signed the contract or when installation started.

How Long Will The Solar Investment Tax Credit Be Available?

Thanks to the Inflation Reduction Act of 2022, the federal credit has been extended through 2034, but it won’t stay at the current level forever:

• 2022–2032: 30% credit
• 2033: Drops to 26%
• 2034: Drops to 22%
• 2035 and beyond: Currently scheduled to expire

Ready To Make The Switch to Solar?

The solar investment tax credit is one of the most powerful incentives available to homeowners and businesses going solar. With no income cap, no credit maximum, and the ability to roll over unused credits, it’s a smart financial move and a climate-conscious one, too.

If you’ve been thinking about going solar, don’t wait. Lock in the full 30% credit while it’s still available!  Get your FREE solar analysis today.

Sources:

Internal Revenue Service (IRS) – Credits and Deductions for Individuals: https://www.irs.gov/credits-and-deductions-for-individuals

Solar Energy Industries Association (SEIA) – Solar Investment Tax Credit (ITC): https://seia.org/solar-investment-tax-credit//

H&R Block – What is the difference between a tax deduction and a tax credit?: https://www.hrblock.com/tax-center/filing/credits/difference-between-tax-deduction-and-tax-credit/

NerdWallet – Solar Tax Credit: What it is and How it Works in 2024-2025: https://www.nerdwallet.com/article/taxes/solar-tax-credit

U.S. Department of Energy – Federal Solar Tax Credits for Businesses: https://www.energy.gov/sites/default/files/2024-02/508%20Federal%20Solar%20Tax%20Credits%20for%20Businesses_Feb24.pdf