The Solar Tax Credit: What It Is And How To Claim It  (2024)

Adding solar panels to your home can save you money—not only on your utility bills, but also at tax time.

That’s because installing solar panels is one of the energy-related upgrades that can make you eligible for the residential clean energy tax credit. This federal tax credit isn’t new, but it was modified and extended by 2022’s Inflation Reduction Act, bumping up its value to 30% of the cost of qualified improvements.

If you’re considering adding rooftop solar panels to your home, here are the details on how to claim this tax credit.

What Is the Tax Credit for Solar Panels?

The IRS allows you to claim a tax credit for home solar panels as part of the residential clean energy credit. For tax years 2022 to 2032, you can get a credit for up to 30% of the expense of installing solar panels; this may include the price of the panels themselves, sales taxes and labor costs. In 2033, the tax credit you can claim will decline to 26% of the cost and, in 2034, to 22%.

The tax credit will expire in 2035 unless Congress renews it.

While there is no maximum amount you can claim, the tax credit is nonrefundable, which means it can reduce your taxes to zero but won’t generate a tax refund.

Let’s say you owe $7,000 in taxes this year. If you qualify for a solar tax credit of $8,000, you can only use $7,000 of that credit on this year’s return. However, the IRS allows you to claim the remaining $1,000 as a credit in future tax years until you use up the entire sum.

How Does the Tax Credit for Solar Panels Work?

The residential clean energy credit allows you to claim the credit in the year the solar panels are installed. For instance, if you bought your solar panels in 2023 but didn’t have them put in place until 2024, you’d claim the credit on your 2024 tax return when you file it in 2025.

How To Qualify for the Solar Tax Credit

You’re eligible for the tax credit if the solar panels are installed on your main home, which the IRS helpfully defines as “generally where you live most of the time.” The credit applies to any new or existing home in the U.S., whether you rent or own it. But if you’re a landlord who doesn’t live in the home, you won’t qualify.

If you use your property solely for business, you won’t be able to claim the credit. But if you use your home partly for business, you may be eligible for the tax credit as follows:

• If you use your home for business purposes up to 20% of the time, you can claim the full credit.
• If you use your home for business purposes more than 20% of the time, you can claim a credit for only the percentage attributable to nonbusiness use.

How To Claim a Tax Credit for Your Solar Panels

To claim your tax credit for solar panels, you must file Form 5695, Residential Energy Credits, along with Form 1040, for the year the panels were installed. You’ll need the following information to file your form:

• Any carryover amounts from a prior year’s tax return
• The address of your main home, where the solar panels were installed
• Qualified expenses you paid related to the installation

Qualified expenses include labor costs for preparation, assembly and wiring, the price of the panels, taxes and other specified costs. If you received a rebate, incentive or additional reimbursem*nt to help pay for the installation of the solar panels, you’ll need to reduce the amount you claim on Form 5695.

Up-to-date tax preparation software will be able to guide you in claiming this credit as well.

Bottom Line

Installing solar panels and making other energy-efficient changes to your home can not only lower your electricity costs, they can also reduce your federal tax burden. In addition, the upgrades could help lower your state tax bill, as many states offer solar tax credits or other incentives for energy-efficient home improvements.