Residential Clean Energy Credit

Step-by-step guide on how to apply for the federal solar tax credit.

The federal solar tax credit, officially known as the Residential Clean Energy Credit, can significantly reduce the cost of installing a solar energy system on your home. This step-by-step guide outlines the process, eligibility, and current deadlines.

Important Note on Deadlines:

Recent legislative changes have significantly impacted the residential solar tax credit. As of July 2025, the 30% Residential Clean Energy Credit (Section 25D) is scheduled to end after December 31, 2025, with no phase-down. This is a significant change from prior legislation that extended it through 2032 with a step-down schedule. To qualify for the full 30% credit, your system must be fully installed and commissioned by December 31, 2025. Always consult the latest IRS guidelines or a tax professional for the most up-to-date information.

Step 1: Determine Your Eligibility

Before anything else, ensure you meet the requirements for the credit:

Ownership: You must own the solar energy system. Leased systems or power purchase agreements (PPAs) do not qualify you for the credit; the leasing company would claim it. If you purchase an interest in an off-site community solar project where the electricity generated is credited against your home's consumption, you may qualify.

Location: The system must be installed at your U.S. residence. This can be your primary residence or a secondary home that you live in part-time and do not rent out. The property can be a house, houseboat, mobile home, cooperative apartment, condominium, or a manufactured home. It does not have to be your principal residence for solar, wind, and geothermal projects.

New or First Use: The solar PV system must be new or being used for the first time. The credit applies to the "original installation."

Qualified Equipment: The credit applies to solar photovoltaic (PV) panels. It also includes associated balance-of-system parts, such as inverters and wiring. Labor costs for onsite preparation, assembly, or installation are generally included.

System Completion: The installation of your system must be complete during the tax year for which you are claiming the credit. If you purchase equipment in one year but it's not installed until the next, you claim the credit for the year of installation.

Tax Liability: While there are no income limits to qualify, the credit is nonrefundable. This means it can reduce your tax liability to zero, but you won't receive a refund for any excess credit. However, you can carry forward any unused portion of the credit to reduce your taxes in the following year(s).

Step 2: Gather Necessary Documentation

Keep meticulous records of all expenses related to your solar installation. This includes:

Receipts and invoices: Documenting the cost of the solar panels, other qualified equipment, and installation labor.

Manufacturer's Certification Statement: This confirms that the products qualify for the credit.

Proof of installation date: Important for meeting the deadlines.

Step 3: Complete IRS Form 5695, Residential Clean Energy Credit

This is the primary form used to claim the credit. You can download the most recent version of Form 5695 from the IRS website (IRS.gov).

This section is specifically for the Residential Clean Energy Credit (including solar, wind, geothermal, solar water heaters, and battery storage).

Enter the qualified solar electric property costs. This is the total gross cost of your solar energy system after any cash rebates you received from your utility (state government rebates generally do not reduce your federal tax credit).

Enter costs for other qualifying clean energy property (solar water heating, small wind energy, geothermal heat pumps, battery storage).

Sum of lines 1 through 5b.

Multiply line 6a by the applicable credit percentage (30% for systems placed in service between 2022 and December 31, 2025). This is your potential credit amount.

These lines are for qualified fuel cell property.

Total residential clean energy credit.

Use the worksheet provided in the Form 5695 instructions to calculate your credit limit based on your tax liability. This determines how much of the credit you can use in the current year and how much, if any, you can carry forward.

Step 4: Integrate with Your Federal Tax Return (Form 1040)

Once you've completed Form 5695:

Schedule 3: Take the amount from line 15 of Form 5695 (the residential clean energy credit you can claim for the current year) and enter it on line 5 of Schedule 3 (Form 1040), "Additional Credits and Payments."

Form 1040: Transfer the total from Schedule 3, Line 8, to your main tax form, IRS Form 1040, line 20 (or the equivalent line for nonrefundable credits).

Step 5: File Your Tax Return

Attach Form 5695 and Schedule 3 to your federal tax return (Form 1040 or Form 1040-NR) when you file.

Deadlines

As of current information (July 2025), the Residential Clean Energy Credit has specific deadlines:

30% Credit: Applies to eligible clean energy property placed in service after December 31, 2021, and before January 1, 2026.

Expiration: The residential solar tax credit (Section 25D) is currently slated to expire entirely after December 31, 2025. This means systems must be fully installed and commissioned by this date to qualify for the 30% credit.

Key Considerations

State and Local Incentives: Research any state or local solar incentives, rebates, or property tax exclusions available in your area. These can further reduce your out-of-pocket costs. Utility rebates typically reduce the system cost before calculating the federal tax credit. State rebates generally do not.

Professional Tax Advice: While this guide provides a general overview, tax laws can be complex. It is highly recommended to consult with a qualified tax professional or financial advisor to ensure you correctly calculate and claim the credit based on your specific financial situation.

Keep Records: Always keep all documentation related to your solar installation for your records, in case of an audit.