What is the Federal Solar Tax Credit?
The federal Investment Tax Credit (ITC) allows you to deduct 30% of your solar system cost from your federal income taxes. This credit applies to both residential and commercial solar installations.
Current Rate: 30% through 2032, then decreases to 26% (2033), 22% (2034), and expires for residential systems in 2035. Commercial systems get 10% after 2034.
What Expenses Qualify?
The following costs are eligible for the 30% tax credit:
- Solar Panels: All panel costs including mounting hardware
- Inverters: Microinverters, string inverters, and power optimizers
- Installation Labor: Professional installation costs
- Permits & Inspections: Building permits and electrical inspection fees
- Batteries: Energy storage systems (if charged 100% by solar)
- Sales Tax: State and local sales tax on equipment
Not Eligible: Landscaping, structural repairs, roof repairs (unless necessary for solar), and maintenance costs after installation.
How to Claim the Tax Credit
Step 1: Install Your System
Your solar system must be installed and operational in the tax year you're claiming the credit. The system must be new (not used equipment).
Step 2: Calculate Your Credit
Multiply your total eligible costs by 30% (0.30). For example, a $1,500 system = $450 tax credit.
Step 3: File IRS Form 5695
Complete IRS Form 5695 (Residential Energy Credits) and attach it to your Form 1040. The credit reduces your tax liability dollar-for-dollar.
Step 4: Carry Forward if Needed
If your tax credit exceeds your tax liability, you can carry the unused portion forward to future tax years. There's no expiration on the carry-forward.
Example Calculation
System Cost Breakdown:
- Solar panels (800W): $600
- Microinverter: $200
- Mounting hardware: $150
- Installation labor: $300
- Permits & inspection: $100
- Sales tax (8%): $108
- Total: $1,458
Federal Tax Credit (30%): $1,458 × 0.30 = $437
Your net cost after tax credit: $1,021
Eligibility Requirements
- Ownership: You must own the system (not lease or PPA)
- Location: System must be installed at your primary or secondary residence in the US
- New Equipment: Only new solar equipment qualifies (no used panels)
- Tax Liability: You must have federal tax liability to claim the credit (but can carry forward)
State Tax Credits & Incentives
Many states offer additional tax credits and rebates on top of the federal credit:
Examples of State Credits:
- New York: 25% state tax credit (up to $5,000)
- Arizona: 25% state tax credit (up to $1,000)
- North Carolina: 35% state tax credit (up to $10,500)
- South Carolina: 25% state tax credit (up to $3,500)
- New Mexico: 10% state tax credit (up to $6,000)
Check your state's energy office website for current incentives and eligibility requirements.