Can You Claim the Solar Tax Credit for a Second Home?

The federal Residential Clean Energy Credit, governed by Internal Revenue Code Section 25D, offers a tax benefit that can lower the cost of investing in solar power. Many homeowners wonder if this credit applies only to a primary dwelling or if it can also be claimed for a second home, such as a vacation property. This article clarifies the eligibility rules for a second home, what costs qualify, and how to claim the credit.

Eligibility Requirements for a Second Home

The availability of the credit for a second home depends on the property meeting the IRS definition of a qualifying residence. This can include a house, houseboat, mobile home, cooperative apartment, or condominium. The home must be located in the United States to qualify for the solar credit.

For a second home to qualify, you must live in it for part of the year. This personal use distinguishes it from a property used for other purposes. For example, a vacation cabin that you occupy for several weeks or weekends throughout the year meets this residency test. The IRS does not specify a minimum number of days you must use the property, only that it serves as one of your residences.

A property used exclusively as a rental does not qualify for this residential credit. If you own a second home that you rent out to tenants and never use personally, you cannot claim the credit for a solar installation on that property. The credit is intended for taxpayers improving their own homes, not for commercial or rental enterprises.

If you use your second home for both personal and rental purposes, you may still claim the credit as long as your personal use is sufficient to qualify it as a residence. However, if the business use of the home exceeds 20%, you must allocate the solar installation expenses. You can only claim the credit on the portion of costs attributable to your personal use.

Qualifying Solar Installation Costs

Once you confirm your second home is eligible, you must identify which project expenses can be included when calculating your credit. The tax credit applies only to the cost of new, qualified clean energy property, as used or previously owned equipment is not eligible.

Eligible costs for a solar electric system include the solar panels or modules. For solar water heaters, the equipment must be certified by the Solar Rating Certification Corporation or a comparable entity. The credit also covers balance-of-system equipment, including the wiring, inverters, and mounting hardware necessary to integrate the system.

The cost of labor for on-site preparation, assembly, and original installation of the solar property is also included. This means the fees paid to contractors for putting the system in place are part of the credit calculation. Any piping or wiring needed to connect the solar installation to the home is also a qualifying expense.

Certain expenses are explicitly excluded. The credit does not apply to traditional roofing materials or structural components that are not part of the solar energy system. For instance, if you replace your roof before installing solar panels, you cannot include the cost of the new shingles. An exception exists for integrated solar roofing tiles or shingles that also generate energy.

Calculating and Claiming the Credit

The Residential Clean Energy Credit is calculated as a percentage of your total qualifying solar installation costs. For property placed in service from 2022 through 2032, the credit is 30% of the total eligible expenses. This rate is scheduled to decrease to 26% in 2033 and 22% in 2034, after which it expires. There is no overall dollar limit on the credit amount for solar installations.

To determine your credit, you first sum all qualifying costs, including the panels, inverters, wiring, and installation labor, then multiply this total by the applicable percentage. For example, if your total qualifying costs for a solar system installed in 2025 are $30,000, your credit would be $9,000 (30% of $30,000).

This is a nonrefundable tax credit, which means the credit can reduce your income tax liability to zero, but you cannot get any of it back as a refund. If your tax liability is less than the amount of your credit, you will not lose the excess amount. The tax code includes a carryforward provision, allowing you to apply the unused portion to future tax years.

You must complete IRS Form 5695, Residential Energy Credits, to claim the credit. Gather all receipts and invoices detailing the costs of your solar project before you begin. On the form, you will enter the total costs for your solar electric and solar water heating property and follow the instructions to calculate the final credit amount.

After completing Form 5695, you must file it with your annual income tax return by attaching it to your Form 1040. The total credit amount from Form 5695 is transferred to Schedule 3 (Form 1040), where it directly reduces your total tax. The form cannot be submitted on its own.