Updated June 17, 2026
The federal Residential Clean Energy Credit takes 30% of your total solar system cost off your federal income taxes. That includes equipment, installation, and battery storage. There is no cap on system size. A $20,000 installation produces a $6,000 credit. That credit comes off what you owe, not off your taxable income. The difference is significant.
What Is the Residential Clean Energy Credit?
The Residential Clean Energy Credit, formerly called the Investment Tax Credit or ITC, was extended and expanded under the Inflation Reduction Act. For systems installed between 2022 and 2032, the credit rate is 30% of qualifying costs. It covers solar panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage systems.
The IRS Residential Clean Energy Credit page has the official eligibility rules and Form 5695 instructions. The Department of Energy's Homeowners Guide to Going Solar offers a plain-language summary of what qualifies and what does not.
What Costs Does the Credit Cover?
The 30% credit applies to the total installed cost of your system, not just the panels. Eligible costs include:
- Solar panels and photovoltaic (PV) cells
- Inverters and mounting hardware
- Wiring, conduit, and electrical work directly tied to the solar system
- Battery storage systems (including those installed without solar panels)
- Labor costs for installation
- Sales tax on qualifying equipment
- Inspection and permit fees directly related to the installation
Standalone battery storage qualified for the 30% credit starting in 2023. That is a notable change from earlier rules, which required the battery to be paired with solar panels at installation.
Who Qualifies for the Credit?
To claim the credit, all of the following need to be true:
- You own the solar system. Leased systems do not qualify for this credit. The 30% goes to the leasing company, not to you.
- The system is installed at a US residence you own: a primary home, vacation home, or second home. It does not have to be your main address.
- The system is new or being installed for the first time. Used or previously installed equipment does not qualify.
- You have federal tax liability to offset. The credit is nonrefundable, meaning it cannot produce a refund on its own. Any unused portion carries forward to future tax years automatically.
Is the Credit Refundable?
No. The credit is nonrefundable. If you owe $4,000 in federal taxes and your credit is $6,000, you zero out your bill for that year and carry the remaining $2,000 forward to the next return. The carryforward provision means you do not lose the credit if your tax bill is smaller than the credit in any given year.
If you consistently owe little or no federal income tax, the credit may take several years to fully absorb. Worth discussing with a tax professional before you buy, particularly if your tax situation is likely to change.
How to Claim It on Your Tax Return
Claiming the credit means filing IRS Form 5695 (Residential Energy Credits) with your federal return. The basic steps:
- Keep all receipts, invoices, and your installer's final contract showing the total system cost.
- Complete Part I of Form 5695 with your qualifying solar expenses.
- The calculated credit flows to Schedule 3 and reduces your total tax liability on Form 1040.
- Any carryforward amount is recorded on Form 5695 for future years.
Most tax software handles Form 5695 automatically once you enter your solar installation details. If your situation is complicated, a CPA or enrolled agent who works with energy credits can confirm you are capturing the full amount correctly.
Credit Schedule: 2026 Through 2032
| Year of Installation | Credit Rate |
|---|---|
| 2022 to 2032 | 30% |
| 2033 | 26% |
| 2034 | 22% |
| 2035 and after | 0% (scheduled to expire) |
Congress has extended this credit several times since 2006. There is reasonable precedent for another extension before 2033. Under current law, though, the 30% rate is guaranteed only through 2032, and the scheduled step-down to 26% in 2033 would reduce your credit on a $24,000 system by about $960. Installing while the 30% rate applies is the straightforward way to lock in the higher number.
Can the Credit Be Combined with Other Incentives?
Yes. The federal credit stacks with most state rebates, utility incentives, and local programs. Worth noting: some state rebates reduce the federal credit basis. If your state provides a $2,000 rebate on a $20,000 system, the federal 30% is calculated on the remaining $18,000, not the original $20,000. Your installer should be able to walk through how this applies in your state.
Energy Star certified equipment can also unlock additional state-level rebates. Check the Energy Star website to see whether the panels or battery your installer is proposing carry that certification.
How Much Will the Credit Save You?
On a typical residential installation, the savings are real money. Use our solar panel cost calculator to model your net cost after the federal credit and any state incentives that apply. A quick reference:
| System Cost | 30% Credit | Net Cost After Credit |
|---|---|---|
| $15,000 | $4,500 | $10,500 |
| $20,000 | $6,000 | $14,000 |
| $25,000 | $7,500 | $17,500 |
| $30,000 | $9,000 | $21,000 |