Homeowner’s
Guide to the Federal
Tax Credit for
Solar Photovoltaics
Disclaimer: This guide provides an
overview of the federal investment
tax credit for residential solar
photovoltaics (PV). It does not
constitute professional tax advice
or other professional nancial
guidance and may change based on
additional guidance from the Treasury
Department. Please see their Fact
Sheet for additional information. This
guide should not be used as the only
source of information when making
purchasing decisions, investment
decisions, tax decisions, or when
executing other binding agreements.
What is a tax credit?
A tax credit is a dollar-for-dollar
reduction in the amount of income tax
you would otherwise owe. For example,
claiming a $1,000 federal tax credit
reduces your federal income taxes due by
$1,000.
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What is the federal solar
tax credit?
• The federal residential solar energy
credit is a tax credit that can be
claimed on federal income taxes for
a percentage of the cost of a solar
PV system paid for by the taxpayer.
2
(Other types of renewable energy are
also eligible for similar credits but are
beyond the scope of this guidance.)
• The installation of the system must be
complete during the tax year.
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• Solar PV systems installed in 2020 and
2021 are eligible for a 26% tax credit.
In August 2022, Congress passed
an extension of the ITC, raising it to
30% for the installation of which was
between 2022-2032.
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It will decrease to
26% for systems installed in 2033 and
to 22% for systems installed in 2034.
The tax credit expires starting in 2035
unless Congress renews it.
• There is no maximum amount that can
be claimed.
Am I eligible to claim the
federal solar tax credit?
You might be eligible for this tax credit if
you meet all of the following criteria:
• Your solar PV system was installed
between January 1, 2017, and
December 31, 2034.
• The solar PV system is located at
a primary residence of yours in the
United States.
5
• You purchase interest in an off-site
community solar project, if the
electricity generated is credited against,
and does not exceed, your home’s
electricity consumption.
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Note: you
would not qualify if you only purchase
the electricity from a community solar
project.
• You own the solar PV system (i.e.,
you purchased it with cash or through
nancing but you are neither leasing
the system nor paying a solar company
to purchase the electricity generated by
the system).
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• The solar PV system is new or being
used for the rst time. The credit
can only be claimed on the “original
installation” of the solar equipment.
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What expenses are included?
The following expenses are included:
• Solar PV panels or PV cells used to
power an attic fan (but not the fan
itself)
• Contractor labor costs for onsite
preparation, assembly, or original
installation, including permitting fees,
inspection costs, and developer fees
• Balance-of-system equipment,
including wiring, inverters, and
mounting equipment
• Energy storage devices that have a
capacity rating of 3 kilowatt-hours
(kWh) or greater.
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If the storage is
installed in a subsequent tax year
to when the solar energy system is
Photo credit Dennis Schroeder, NREL
The U.S. Department of Energy
Solar Energy Technologies Ofce
funds research and development
across the solar energy spectrum
to drive innovation, lower costs,
and support the transition to
a decarbonized power sector
by 2035 and a decarbonized
economy by 2050.
installed it is still eligible, however, the
energy storage devices are still subject
to the installation date requirements.
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• Sales taxes on eligible expenses.
How do other incentives
I receive affect the federal
tax credit?
For current information on incentives,
including incentive-specic contact
information, visit the Database of State
Incentives for Renewables and Efciency
website at www.dsireusa.org.
Rebate from My Electric Utility to
Install Solar
Under most circumstances, subsidies
provided by your utility to you to install
a solar PV system are excluded from
income taxes through an exemption in
federal law.
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When this is the case,
the utility rebate for installing solar
is subtracted from your system costs
before you calculate your tax credit.
For example, if your solar PV system
installed in 2022 cost $18,000, and your
utility gave you a one-time rebate of
$1,000 for installing the system, your tax
credit would be calculated as follows:
($18,000 - $1,000) * 0.30 = $5,100
However, payments from a public utility
to compensate for excess generated
electricity not consumed by the taxpayer
but delivered to the utility’s electrical
grid (for example, net metering credits)
are not subsidies for installing qualifying
property and do not affect the taxpayer’s
credit qualication or amounts.
Payment for Renewable Energy
Certicates
When your utility, or other buyer, gives
you cash or an incentive in exchange for
renewable energy certicates or other
environmental attributes of the electricity
generated (either upfront or over time),
the payment likely will be considered
taxable income.
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If that is the case, the
payment will increase your gross income,
but it will not reduce the federal solar tax
credit.
Rebate from My State Government
Unlike utility rebates, rebates from state
governments generally do not reduce
your federal tax credit. For example, if
your solar PV system was installed in
2022, installation costs totaled $18,000,
and your state government gave you a
one-time rebate of $1,000 for installing
the system, your federal tax credit would
be calculated as follows:
$18,000 * 0.30 = $5,400
State Tax Credit
State tax credits for installing solar
PV generally do not reduce federal tax
credits—and vice versa. However, when
you receive a state tax credit, the taxable
income you report on your federal taxes
may be higher than it otherwise would
have been because you now have less
state income tax to deduct.
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The end
result of claiming a state tax credit is
that the amount of the state tax credit is
effectively taxed at the federal tax level.
Can I claim the credit,
assuming I meet all
requirements, if …
…I am not a homeowner?
Yes. You do not necessarily have to be
a homeowner to claim the tax credit.
A tenant-stockholder at a cooperative
housing corporation and members of
condominiums are still eligible for the
tax credit if they contribute to the costs of
an eligible solar PV system. In this case,
the amount you spend contributing to the
cost of the solar PV system would be the
amount you would use to calculate your
tax credit. However, you cannot claim
a tax credit if you are a renter and your
landlord installs a solar system, since you
must be an owner of the system to claim
the tax credit.
…I installed solar PV on my
vacation home in the United
States?
Yes. Solar PV systems do not necessarily
have to be installed on your primary
residence for you to claim the tax
credit.
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However, the residential federal
solar tax credit cannot be claimed when
you put a solar PV system on a rental unit
you own, though it may be eligible for
the business ITC under IRC Section 48.
15
…I am not connected to the electric
grid?
Yes. A solar PV system does not
necessarily have to be connected to
the electric grid for you to claim the
residential federal solar tax credit, as long
as it is generating electricity for use at
your residence.
…the solar PV panels are on my
property but not on my roof?
Yes. The solar PV panels located on
your property do not necessarily have
to be installed on your roof, as long as
they generate electricity for use at your
residence.
…I have a home ofce (or my
residence is also used for a
commercial purpose)?
Yes, but if the residence where you
install a solar PV system serves multiple
Solar PV system on a home in the Ozark Mountains.
Photo credit Douglas Hutchings.
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purposes (e.g., you have a home ofce
or your business is located in the same
building), claiming the tax credit
can be more complicated. When the
amount spent on the solar PV system is
predominantly used for residential rather
than business purposes, the residential
credit may be claimed in full without
added complications. However, if less
than 80% of the solar PV system cost is a
residential expense, only the percentage
that is residential spending can be used
to calculate the federal solar tax credit
for the individual’s tax return; the portion
that is a business expense could be
eligible for a similar commercial ITC on
the business’s tax return.
16
…I nanced my solar PV system
instead of paying for it upfront?
(If so, how do I treat interest,
origination fees, and extended
warranty expenses?)
Yes. If you nanced the system through
the seller of the system and you are
contractually obligated to pay the full
cost of the system, you can claim the
federal solar tax credit based on the
full cost of the system. Miscellaneous
expenses, including interest owed on
nancing, origination fees, and extended
warranty expenses are not eligible
expenses when calculating your tax credit.
…I bought solar panels but have
not installed them yet?
No. The tax credit is only for systems for
which installation was complete during
the year.
17
…I participate in an off-site
community solar program?
The answer depends heavily on your
specic circumstances. The IRS states
in Questions 25 and 26 in its Q&A on
Tax Credits
18
that off-site solar panels
or solar panels that are not directly on
the taxpayer’s home could still qualify
for the residential federal solar tax credit
under some circumstances. However,
community solar programs can be
structured in various ways, and even if
you are eligible for the tax credit, it may
be difcult to claim due to other tax rules.
For example, one arrangement is the
creation of a “special purpose entity,”
where community members form
and invest in a business that operates
the community solar project. If your
participation is limited to investing in the
community solar project and you do not
participate in the operation of the project
on a regular, continuous, and substantial
basis, you are constrained in taking
advantage of the credit because you are
considered a “passive investor.” IRS rules
require that a tax credit associated with a
passive investment only be used against
passive income tax liability, which only
applies to income generated from either a
rental activity or a business in which the
individual does not materially participate.
Many homeowners will therefore not
have passive income against which the
credit can be claimed.
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Other Frequently Asked
Questions
If the tax credit exceeds my tax
liability, will I get a refund?
This is a nonrefundable tax credit, which
means you will not get a tax refund for
the amount of the tax credit that exceeds
your tax liability.
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However, you can
carry over any unused amount of tax
credit to the next tax year.
Is there a dollar or lifetime limit on
the federal solar tax credit?
No, there is neither a dollar limit nor is
there a lifetime limit on the tax credit.
The credit is only limited to 30% of
qualied expenditures made for property
placed in service in a given year.
Can I qualify for the tax credit if the
property installed has been used by
another individual?
No. Used property is not eligible for the
federal solar tax credit.
Is the cost of a roof replacement
eligible for a tax credit?
Sometimes. Traditional roof materials
and structural components that serve
only a roong or structural function
do not qualify for the credit. However,
some solar roong tiles and solar roong
shingles serve both the functions of solar
electric generation and structural support
and such items may qualify for the
credit.
21
Can I use the tax credit against the
alternative minimum tax?
Yes. The tax credit can be used against
either the federal income tax or the
alternative minimum tax.
I bought a new house that was
constructed in 2022 but I did not
move in until 2023. May I claim a
tax credit if it came with solar PV
already installed?
Yes. Generally, you can claim a tax credit
on the expenses related to the new solar
PV system that already came installed
on the house for the year in which you
moved into the house (assuming the
builder did not claim the tax credit)—in
other words, you may claim the credit
in 2023. For example, you can ask the
builder to make a reasonable allocation
for these costs for purposes of calculating
your tax credit.
How do I claim the federal
solar tax credit?
After seeking professional tax advice and
ensuring you are eligible for the credit,
you can complete and attach IRS Form
5695
22
to your federal tax return (Form
1040 or Form 1040NR). Instructions
on lling out the form are available at
http://www.irs.gov/pub/irs-pdf/i5695.pdf
(“Instructions for Form 5695,” IRS).
Where can I nd more
information?
Ask Questions
Internal Revenue Service (IRS), 1111
Constitution Avenue, N.W., Washington,
D.C. 20224, (800) 829-1040.
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Find Resources
• The federal statute and IRS guidance: 26 USC § 25D at www.
gpo.gov and “Q&A on Tax Credits for Sections 25C and 25D” at
www.irs.gov.
• Updated information on the current status of the ITC:
Database of State Incentives for Renewables and Efciency
entry on “Residential Renewable Energy Tax Credit”
at www.dsireusa.org.
Endnotes
1
The federal tax credit is sometimes referred to as an Investment Tax Credit, or ITC,
though is different from the ITC offered to businesses that own solar systems.
2
26 U.S.C. § 25D, https://www.govinfo.gov/app/details/USCODE-2011-title26/USCODE-
2011-title26-subtitleA-chap1-subchapA-partIV-subpartA-sec25D.
3
26 U.S.C. § 25D(e)(8(A) (“an expenditure … shall be treated as made when the original
installation of the item is complete”).
4
Systems installed before December 31, 2019 were eligible for a 30% tax credit.
5
26 U.S.C. § 25D(d)(2) (“for use in a dwelling unit located in the United States and used
as a residence by the taxpayer”).
6
The IRS has permitted a taxpayer to claim a section 25D tax credit for purchase of a
portion of a community solar project (IRS. 2015, September 4. IRS private letter ruling
201536017. https://www.irs.gov/pub/irs-wd/201536017.pdf. Note: A private letter ruling
may not be relied on as precedent by other taxpayers.)
7
26 U.S.C. § 25D(e)(8)(A).
8
26 U.S.C. § 25D(e)(8)(A).
9
26 U.S.C. § 25D(d)(6).
10
Isaac L. Maron. 2018, March 26. “Residential Solar Storage is Eligible for Tax Credit,
Subject to a 100% Cliff.” Tax Equity Times. https://www.taxequitytimes.com/2018/03/
residential-solar-storage-eligible-tax-credit-subject-100-cliff/. Note: A private letter
ruling may not be relied on as precedent by other taxpayers.
11
26 U.S.C. § 136, https://www.govinfo.gov/app/details/USCODE-2011-title26/USCODE-
2011-title26-subtitleA-chap1-subchapB-partIII-sec136.
12
IRS. 2010, September 3. IRS private letter ruling 201035003. http://www.irs.gov/pub/
irs-wd/1035003.pdf. Note: A private letter ruling may not be relied on as precedent by
other taxpayers.
13
The Tax Cuts and Jobs Act of 2017 placed a $10,000 limit on state and local tax (SALT)
deduction through 2025. Therefore, if a homeowner is still paying more than $10,000 in
SALT after claiming a state tax credit, the state tax credit benet would not effectively
be reduced by the federal tax rate, as it would not impact federal taxes (due to the SALT
limit).
14
26 U.S.C. § 25D(d)(2) (“for use in a dwelling unit located in the United States and used
as a residence by the taxpayer”).
15
See 26 U.S.C. § 25D(d)(2), which species that eligible solar electric property
expenditures must be “for use at a dwelling unit located in the United States and used as a
residence by the taxpayer” (emphasis added).
16
IRS. “Instructions for Form 5695.” https://www.irs.gov/instructions/i5695.
17
26 U.S.C. § 25D(e)(8)(A) (“an expenditure … shall be treated as made when the original
installation of the item is complete”).
18
IRS. “Q&A on Tax Credits for Sections 25C and 25D.” Notice 2013-70. https://www.irs.
gov/pub/irs-drop/n-13-70.pdf.
19
Jason Coughlin, Jennifer Grove, Linda Irvine, Janet F. Jacobs, Sarah Johnson Phillips,
Leslie Moynihan, and Joseph Wiedman. 2010, November. A Guide to Community
Solar: Utility, Private, and Non-Prot Project Development. http://www.nrel.gov/docs/
fy12osti/54570.pdf.
20
Homeowners may get a tax refund at the end of the year due to the tax credit, if the
reduction in tax liability means there was overpayment during the year. This can often
occur when employers deduct taxes for employees over the course of the year. However,
such refund is still limited by the taxpayer’s total tax liability.
21
IRS, “Frequently asked questions about energy efcient home improvements and
residential clean energy property credits,” https://www.irs.gov/pub/taxpros/fs-2022-40.
pdf.
22
IRS, “About Form 5695, Residential Energy Credits,” https://www.irs.gov/forms-pubs/
about-form-5695.
A rooftop array perched on a coastal hill on the island of Vinalhaven in Maine.
Photo credit William Byers.
DOE/EE-2315 • September 2022
For more information, visit: energy.gov/eere/solar
SOLAR ENERGY TECHNOLOGIES OFFICE
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