Tax Credit Guide
Solar Tax Credit 2026 — Residential Clean Energy Credit (30%)
The federal solar tax credit (Residential Clean Energy Credit) offers a 30% credit on solar panel system costs installed in 2026. There is no maximum dollar cap — you claim 30% of total installation costs. The credit is available for primary and secondary residences.
What Is the Residential Clean Energy Credit?
The Residential Clean Energy Credit (formerly known as the Investment Tax Credit or ITC) is a federal tax credit that covers 30% of the cost of qualified clean energy equipment installed in your home. It was significantly expanded and extended by the Inflation Reduction Act of 2022, which increased the credit rate from 26% to 30% and added battery storage as an eligible technology for the first time.
The credit is available for systems placed in service from January 1, 2022 through December 31, 2032 at the 30% rate. It then steps down to 26% in 2033 and 22% in 2034, and expires for residential installations after 2034 unless Congress acts to extend it.
The credit is non-refundable, meaning it can reduce your tax liability to zero but any excess credit can be carried forward to future tax years. This carry-forward provision makes the credit particularly valuable for homeowners who may not have enough tax liability in a single year to use the full credit.
Use our tax refund calculator to estimate your tax liability and see how much of the solar credit you can use in the current year.
30% Credit Rate (2022–2032)
The credit rate is 30% of qualified costs for systems placed in service during the period 2022 through 2032. The rate schedule is as follows:
| Year System Placed in Service | Credit Rate |
|---|---|
| 2022 – 2032 | 30% |
| 2033 | 26% |
| 2034 | 22% |
| 2035 and after | 0% (expired for residential) |
The credit rate is determined by the date the system is placed in service (when it is installed and operational), not the date you purchased the equipment or received final approval from your utility. If you signed a contract in 2025 but installation is completed in 2026, the 2026 rate (30%) applies.
Eligible Property
The following types of property qualify for the 30% Residential Clean Energy Credit:
Solar Electric (PV) Panels
Photovoltaic (PV) solar panels that generate electricity for your home qualify. This includes the panels themselves, inverters, wiring, mounting equipment, and electrical panel upgrades needed to accommodate the solar system.
Solar Water Heaters
Solar water heating systems that use solar energy to heat water for use in your home qualify. The system must be certified by the Solar Rating Certification Corporation (SRCC) or a comparable entity. At least half of the system's energy must come from the sun.
Battery Storage
Battery storage technology with a capacity of 3 kilowatt-hours (kWh) or more qualifies. Remarkably, the battery does not need to be charged by solar panels to qualify — standalone battery systems are eligible. This includes systems like Tesla Powerwall, LG Chem RESU, Enphase Encharge, and FranklinWH.
Fuel Cells
Qualifying fuel cell property uses an electrochemical process to generate electricity. The fuel cell must have a generating capacity of at least 0.5 kW and an efficiency rating of at least 30%.
Small Wind Turbines
Wind turbines with a nameplate capacity of up to 100 kW qualify. The credit covers the turbine, tower, controller, inverter, and installation costs.
Geothermal Heat Pumps
Geothermal heat pumps that use the ground or groundwater as a heat source or sink qualify. The equipment must meet ENERGY STAR requirements at the time of purchase.
Eligible Costs
The 30% credit applies to the following costs related to your clean energy installation:
- Equipment costs: Solar panels, inverters, mounting hardware, batteries, charge controllers, wiring
- Labor costs: Installation labor, including on-site preparation, assembly, and system commissioning
- Permitting and inspection fees: Building permits, electrical permits, and required inspections
- Sales tax: Sales tax paid on eligible equipment and materials
- Electrical panel upgrades: Upgrading your main electrical panel to accommodate the solar system (if required by code)
- Roof attachment systems: Racking and mounting equipment specifically designed to attach solar panels to your roof
- Energy storage: Battery systems (≥3 kWh) including inverters and battery management systems
Example: If your total solar installation cost is $25,000 (equipment $15,000 + labor $6,000 + permits $500 + sales tax $1,500 + panel upgrade $2,000), the credit would be 30% × $25,000 = $7,500.
Ineligible Costs
The following costs do NOT qualify for the credit:
- Roof repairs or replacement — The cost of fixing or replacing your roof is not eligible, even if the roof work is needed before installing solar panels. Only the solar-specific attachment equipment qualifies.
- Home renovations unrelated to solar — General home improvements, even if they improve energy efficiency, do not qualify under this credit.
- Maintenance and repairs — Ongoing maintenance, cleaning, and repairs after installation are not eligible.
- Extended warranties — Optional extended warranties beyond the standard manufacturer warranty are generally not eligible.
- Financing costs — Interest, loan origination fees, or other financing charges are not eligible.
No Dollar Cap
Unlike many other federal tax credits, the Residential Clean Energy Credit has no maximum dollar amount. The credit is simply 30% of qualified costs, regardless of the total system cost. This makes it one of the most generous federal tax credits available to homeowners.
For comparison:
- EV tax credit: capped at $7,500 (new) or $4,000 (used)
- Child Tax Credit: capped at $2,000 per child
- Residential Clean Energy Credit: no cap — 30% of any amount
The only limitation is that the credit is non-refundable. If your tax liability is less than the credit amount, the excess carries forward to future years (see below). However, there is no upper limit on how much credit you can earn from a qualifying installation.
Carry-Forward Rules
One of the most valuable features of the Residential Clean Energy Credit is the ability to carry forward any unused credit to future tax years. This is particularly important because solar installations can be expensive — a typical system costs $15,000 to $30,000 — and the resulting 30% credit may exceed your tax liability in a single year.
How carry-forward works:
- You calculate your credit on Form 5695
- The credit first reduces your tax liability for the installation year
- Any excess automatically carries forward to the next tax year
- The carry-forward continues each year until the full credit is used
- There is no expiration on the carry-forward — it continues indefinitely
Example: If you install a $40,000 solar system, your credit is $12,000. If your tax liability in year 1 is $8,000, you use $8,000 of the credit. The remaining $4,000 carries forward to year 2. If your year 2 tax liability is $5,000, you use the remaining $4,000 credit.
Primary and Secondary Residences
The credit is available for equipment installed at a home you own and occupy. The rules differ by technology type:
| Technology | Primary Residence | Secondary Residence |
|---|---|---|
| Solar PV panels | Yes | Yes |
| Solar water heater | Yes | Yes |
| Battery storage (≥3 kWh) | Yes | Yes |
| Fuel cells | Yes | No (primary only) |
| Small wind turbines | Yes | Yes |
| Geothermal heat pumps | Yes | Yes |
For fuel cell property only, the credit is limited to installations at your primary residence. All other eligible technologies can be installed at either your primary or secondary residence.
Rental Properties
The Residential Clean Energy Credit is not available for equipment installed on rental properties. The credit is designed for homeowner-occupied residences only. If you own a rental property and install solar panels, you may be able to take advantage of the commercial clean energy credit (Section 48 ITC) instead, which has different rules and rates.
If you use a portion of your home as a home office or for business purposes, the credit may be reduced proportionally. Only the portion of the system used for personal residential purposes qualifies for the residential credit. The business-use portion may qualify under the commercial credit rules.
For vacation homes or second homes that you occupy personally (not rent out), the credit is available as described in the previous section. If you rent out your second home for part of the year, the credit may be prorated based on personal vs rental use days.
How to Claim (Form 5695)
Claim the Residential Clean Energy Credit on your federal income tax return using IRS Form 5695 (Residential Energy Credits). Here is the process:
- Complete Form 5695 — Part I of Form 5695 is used for the Residential Clean Energy Credit. Enter the qualified costs for each type of eligible property you installed.
- Calculate the credit — The form calculates 30% of your qualified costs. The credit appears on Line 6 of Form 5695.
- Transfer to Schedule 3 — The credit amount is entered on Schedule 3 (Form 1040), Line 5, which flows to your Form 1040.
- Carry forward if needed — If the credit exceeds your tax liability, the unused portion is carried forward on Form 5695 to the next tax year.
- File with your return — Attach Form 5695 to your Form 1040.
Keep all receipts, contracts, and manufacturer certifications for your solar installation. The IRS may ask for documentation that the equipment meets applicable certification requirements (SRCC for solar water heaters, ENERGY STAR for geothermal heat pumps, etc.). Also save any utility interconnection agreements and permits.
For a detailed walkthrough of the form, consult the IRS Form 5695 instructions.
State Solar Incentives
In addition to the federal credit, many states offer their own solar incentives that can further reduce the cost of your clean energy installation:
- State tax credits — Some states (like New York, California, Massachusetts, Oregon, and Maryland) offer state-level income tax credits for solar installations. These may be in addition to the federal credit.
- Sales tax exemptions — Many states exempt solar equipment from state sales tax.
- Property tax exemptions — Some states exempt the added value of solar panels from property tax assessments.
- Net metering — Most states require utilities to credit you for excess electricity your solar system sends back to the grid.
- Solar renewable energy certificates (SRECs) — In some states, you can sell SRECs for additional income.
The federal credit is claimed before any state incentives. State incentives generally do not reduce the qualified costs for the federal credit calculation. See our state tax rates page for information on your state's tax system.
Frequently Asked Questions
As a tax content specialist, I verify every detail in this guide against IRS Form 5695 instructions, IRS Publication 946, and the Inflation Reduction Act's clean energy provisions. The solar tax credit landscape changed significantly with the IRA, expanding eligibility to battery storage and increasing the rate to 30%. I update this guide each tax season to reflect current credit rates, eligible technologies, and state incentive programs.
— Lead Tax Content Strategist, TaxCalcHQ