What Is the Solar Tax Credit Expiration Schedule?
Understand the updated federal solar tax credit timeline. This guide details the current incentive value and the key dates homeowners must know before it phases out.
The federal tax incentive for installing solar energy systems is a benefit for homeowners, but legislative changes have altered the credit’s name, value, and expiration timeline. Many homeowners are concerned about missing a deadline to capitalize on this financial incentive for transitioning to renewable energy. This creates a need for clear information regarding the current status and future of the credit.
The Current Residential Clean Energy Credit
The Inflation Reduction Act of 2022 altered residential renewable energy incentives. This act renamed the credit to the Residential Clean Energy Credit and revised its value and duration. Homeowners can now benefit from a tax credit equal to 30% of the total cost of a qualifying system placed in service from January 1, 2022, through December 31, 2032.
The scope of qualifying property for this credit covers more than just solar panels. It includes solar photovoltaic (PV) panels and solar water heaters that are certified by the Solar Rating Certification Corporation. A significant addition is the inclusion of battery storage technology. To qualify, the battery must have a capacity of 3 kilowatt-hours or more and be installed with a new or existing clean energy system.
This credit directly reduces your total tax liability, meaning it is a dollar-for-dollar reduction of the taxes you owe. Unlike a deduction, which only lowers your taxable income, a credit provides a more direct financial benefit. If the credit you are entitled to is more than the amount of tax you owe, the excess amount can be carried forward to reduce your tax liability in subsequent years. There is no annual or lifetime dollar limit on the credit.
The Future Credit Step-Down Schedule
The 30% credit rate for the Residential Clean Energy Credit is not permanent and is scheduled to decrease in the future. This planned reduction, often called a step-down or phase-out, provides a clear timeline for homeowners considering an investment in clean energy property. The current 30% rate will remain in effect for all qualifying systems installed through the end of 2032.
The first reduction will occur for systems placed in service in the calendar year 2033. For these installations, the available tax credit will decrease from 30% to 26% of the total qualified expenses. This means a homeowner installing a system in 2033 will receive a smaller, though still substantial, tax benefit compared to someone who installed an identical system the year before.
Following this initial step-down, another reduction is scheduled for the subsequent year. For any qualifying clean energy property placed in service during 2034, the tax credit will be further reduced to 22%. After December 31, 2034, the Residential Clean Energy Credit is scheduled to expire completely.
Qualifying for the Credit
To be eligible for the Residential Clean Energy Credit, several requirements must be met. The clean energy property, such as solar panels or a geothermal heat pump, must be new; used equipment does not qualify. The home must be your primary or secondary residence located in the United States, and you can be eligible whether you are the owner or a renter. The credit cannot be claimed by landlords for rental properties where they do not reside.
A central factor in determining your eligibility and the credit percentage you can claim is the “placed in service” date. This is not the date you sign a contract or purchase the equipment, but the date the installation is complete and the system is ready and available for use. This distinction is important because the credit you qualify for is determined by the tax year in which the system is officially placed in service.
When you file your federal income taxes, you must use IRS Form 5695, Residential Energy Credits, to claim the incentive. To complete this form, you will need to calculate your total qualified expenses. These costs include the price of the equipment itself, such as the solar panels and inverters, as well as all labor costs for onsite preparation, assembly, and original installation. You will enter the total cost on the form to calculate the credit amount, which then transfers to your main tax return, Form 1040.