Federal Solar Tax Credit status for 2026.

The headline rules

For new residential clean-energy expenditures after December 31, 2025, the Residential Clean Energy Credit is not available under current IRS guidance. This is why the calculator now uses a 0% federal-credit rate for new installations.

For systems that qualified before the cutoff, the credit was non-refundable and unused credit could carry forward. Those older carryforward questions are tax-specific and should be handled with a CPA, especially if the installation was completed near the end of 2025.

Statutory basis: 26 U.S.C. § 25D, as amended by §13302 of the Inflation Reduction Act of 2022 (P.L. 117-169). IRS guidance: irs.gov/credits-deductions/residential-clean-energy-credit.

What qualifies as a "qualifying expenditure"

The credit applies to the cost of a "qualified solar electric property" installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer. The IRS interprets this broadly to include essentially every component required to place the system in service:

• Solar PV modules and inverters.
• Mounting equipment, racking, and roof penetrations.
• Wiring, conduit, disconnects, and the production meter.
• Labor costs for on-site preparation, assembly, and installation.
• Permitting fees and inspection costs.
• Energy storage (batteries) with capacity ≥ 3 kWh, when installed in conjunction with or retrofit to an existing solar system, per the 2022 IRA amendments.

Notable items that do not qualify: financing fees and interest, extended service warranties priced separately from the system, electrical-panel upgrades that are not "necessary to enable" the solar installation, and roof replacement that goes beyond what is required to support the PV mounting.

Worked example: a $24,000 California install

Suppose a homeowner installed an 8 kW system for $24,000 (gross), placed in service in 2025. The qualifying expenditure was $24,000; under the then-applicable 30% credit, the credit was:

$24,000 × 30% = $7,200

That $7,200 was claimed on Form 5695, Part I, then carried to Schedule 3 of Form 1040, Line 5a. It reduces your federal income tax dollar-for-dollar.

The "non-refundable" trap

For older qualifying installations, because the credit was non-refundable, you must have at least $7,200 of federal income tax liability (line 22 of Form 1040, before credits) in the year you install to use the full credit at once. If your liability is lower — for example, a retiree on Social Security plus modest pension income may owe only $2,000 in federal tax — you claim what you can use in year one and carry the remainder forward.

Carryforward example for the same install:

Current statutory language permits carryforward "to each of the succeeding taxable years" without an upper bound, although a careful CPA will note that this provision is itself the product of past legislative tinkering and could change.

AMT and high-income taxpayers

For older qualifying installations, the Residential Clean Energy Credit may be claimed against the Alternative Minimum Tax, which removes a historical pain point for higher-income filers. If you are in AMT territory, confirm the mechanics with your CPA — the interaction with state taxes is the most common source of error.

Eligibility specifics

• Residency requirement. The property must be located in the United States and used as a residence by the taxpayer. A primary residence, a second home, and a vacation property all qualify. A property held strictly for rental — where the taxpayer does not use it as a residence at all — does not qualify under §25D (commercial credits exist separately under §48).
• New equipment. The components must be new; used or refurbished panels do not qualify.
• Ownership. You must own the system. A solar lease or power-purchase agreement (PPA) means the third-party owner claims the credit, not you. The homeowner-economics implication is large: PPAs typically price the lost credit value into your bill via a higher per-kWh charge.
• Placed-in-service date. The credit is claimed in the tax year the system is operational and inspected, not the year you sign a contract or pay a deposit.

State and utility incentives — stacking rules

For older qualifying installations, most state and utility incentives were additive to the federal credit, but their interaction with the credit's basis varied:

• Utility rebates typically reduce the qualifying expenditure before the 30% was calculated. A $1,000 rebate on a $24,000 system meant the federal credit was 30% of $23,000 = $6,900, not $7,200.
• State income tax credits generally do not reduce the federal basis. You claim both, on separate forms.
• Performance-based incentives (PBIs), such as New York's NY-Sun Megawatt Block, are usually paid to the installer and never appear on your invoice — but they often manifest as a discounted gross price, which similarly reduces your basis.

Common ways the credit is lost or reduced

1. Signing a PPA or lease. Third-party-owned systems forfeit the homeowner's claim entirely.
2. Insufficient tax liability with poor planning. A retiree in a low bracket may take a decade to absorb a $7,000 credit.
3. Mis-allocated invoice line items. If your installer separates "qualifying" from "non-qualifying" costs incorrectly on the invoice, the IRS will scrutinize the deduction. Insist on a clean, itemized invoice you can defend if audited.
4. Property used for business. If a portion of the home is claimed as a home office and the solar serves that portion, the credit is split between §25D (residential) and §48 (commercial) and the paperwork gets meaningfully more complex.

What you should do

• Project your federal income tax liability for the install year before signing a contract, and budget the carryforward years if needed.
• Keep your itemized installer invoice and final inspection certificate together with your tax records for at least seven years.
• If your tax situation is non-trivial (AMT exposure, low-income retirement, mixed residential/business use, multiple rental properties), pay for an hour of CPA time before installation. For new post-2025 installations, ask the CPA to confirm that no Section 25D credit is available before budgeting around one.

This guide is editorial reference material and not tax advice for your specific situation. See our terms of use. Last reviewed June 2026; IRS guidance checked against the Residential Clean Energy Credit page as of that review date.