How Many Years Can You Claim the Solar Tax Credit?

The Residential Clean Energy Credit is a federal incentive designed to encourage homeowners to adopt renewable energy technologies. This tax credit helps offset the cost of installing specific clean energy systems in a home. Its purpose is to promote the use of clean energy sources while simultaneously reducing homeowners’ energy expenses.

Understanding the Residential Clean Energy Credit

The Residential Clean Energy Credit is a non-refundable tax credit available to homeowners who install qualifying renewable energy technologies. “Non-refundable” signifies that the credit can reduce a taxpayer’s federal income tax liability to zero. However, it cannot result in a tax refund beyond the amount of tax owed. The credit is applied directly against the federal income tax a taxpayer is obligated to pay.

This credit helps to directly lower the amount of federal income tax owed, rather than simply reducing taxable income. It serves as a dollar-for-dollar reduction of tax liability. The credit aims to make clean energy investments more financially appealing to homeowners.

Qualifying for the Credit

The Residential Clean Energy Credit is available to homeowners who install eligible renewable energy systems on a new or existing home located in the United States. To qualify, the taxpayer must own and reside in the home where the system is installed.

Qualified expenses include costs for new clean energy properties such as solar electric property and solar water heating property. Geothermal heat pump property and small wind energy property also qualify. Additionally, battery storage technology is eligible if it has a capacity of at least 3 kilowatt-hours. These expenses must be for new installations. Labor costs for on-site preparation, assembly, or original installation, including piping or wiring to connect the property to the home, are included in qualified expenses.

Calculating and Claiming the Credit

The Residential Clean Energy Credit equals 30% of the costs of qualified clean energy property installed from 2022 through 2032. The credit percentage will phase down to 26% for property placed in service in 2033 and to 22% for property placed in service in 2034. To calculate the credit, multiply the total qualified expenses by the applicable percentage. For example, a $20,000 solar installation would yield a $6,000 credit in 2025.

To claim the credit, taxpayers must use IRS Form 5695, Residential Energy Credits. On Form 5695, taxpayers will enter their calculated qualified expenses in the appropriate sections, which then determine the credit amount. After completing Form 5695, it must be attached to the taxpayer’s federal income tax return, typically Form 1040.

If the calculated credit amount exceeds the taxpayer’s federal income tax liability for that year, the unused portion of the credit can be carried forward to subsequent tax years. There is no specific limit to the number of years it can be carried forward, as long as the credit remains in effect. This means any unused credit can continue to reduce future tax liabilities until it is fully utilized or the credit program expires.

Important Aspects of the Credit

Only purchased systems qualify for the Residential Clean Energy Credit; systems acquired through a lease or power purchase agreement (PPA) are not eligible. The taxpayer must own the system to claim the credit.

There are no income limitations or adjusted gross income (AGI) caps for claiming this credit. This means homeowners across all income brackets can potentially benefit from the incentive, provided they meet the other eligibility requirements.

Taxpayers should keep thorough records, including invoices, receipts, and contracts for all qualified expenses. These documents may be requested by the IRS in the event of an audit. For property placed in service starting in 2025, a Product Identification Number (PIN) from a qualified manufacturer may also be required on the tax return.

The federal credit basis is not reduced by state, local, or utility rebates that are not considered taxable income. However, if a state or local program provides a taxable grant or subsidy, that amount reduces the federal credit basis. Payments from public utilities for excess electricity sold back to the grid do not affect qualified expenses. If a homeowner installs multiple eligible systems in different tax years, each system is eligible for the credit in the year it is placed in service.