Claiming the Solar Tax Credit on Your 2025 Return — And What's Changed for 2026 Solar Installs

Rebate programmes change often, and this post reflects what was true when it was written. Check the current status in your state before acting on any figure below.
Claiming the Solar Tax Credit on Your 2025 Return
Key distinction: If your solar system was installed and operational (placed in service) by December 31, 2025, you can still claim the 30% Section 25D credit on your 2025 tax return. If you are installing solar in 2026 or later, the federal tax credit has expired — eliminated by the One Big Beautiful Bill Act (OBBBA, P.L. 119-21, signed July 4, 2025).

Section 1: For 2025 Filers — How to Claim the Section 25D Credit

If your solar system was placed in service on or before December 31, 2025, you are entitled to claim the Section 25D Residential Clean Energy Credit equal to 30% of your total qualifying installation costs. Here is everything you need to do it correctly.

What Costs Qualify

The 30% credit applies to the full cost of the qualifying system, including:

  1. Solar panels and cells — the photovoltaic modules themselves
  2. Inverters — string inverters, microinverters, or power optimizers
  3. Mounting equipment — racking, rails, roof attachments
  4. Wiring and electrical components — conduit, disconnects, monitoring systems
  5. Labor costs — installation, electrician work, engineering
  6. Permitting and interconnection fees — building permits, utility fees, inspection costs
  7. Battery storage — home batteries installed with or added after solar (added by IRA 2022)
  8. Sales tax on all the above

Roof repairs or replacement costs do NOT qualify, even if required before solar installation. Get an itemized invoice from your installer that separates solar-specific from non-solar costs.

Step-by-Step: Claiming the Credit on Your 2025 Tax Return

Step 1: Gather Your Documentation

  • Final itemized invoice from your solar installer (total system cost broken down by component)
  • Proof of payment (bank statements, canceled checks, credit card records)
  • Certificate of completion or inspection sign-off showing the system was placed in service in 2025
  • If battery storage is included, a separate line item for battery cost
  • Any manufacturer certifications provided by your installer

Step 2: Complete IRS Form 5695, Part I

IRS Form 5695 (Residential Energy Credits) is the form you use to claim Section 25D. The relevant section is Part I: Residential Clean Energy Credit.

  • Line 1: Enter total qualified solar electric property costs
  • Line 5: Enter total qualified battery storage costs (if applicable)
  • Line 13: The form calculates 30% of your qualifying costs — this is your credit amount
  • The form walks you through the nonrefundable credit limitation calculation

Step 3: Transfer to Schedule 3

Transfer the credit amount from Form 5695 to Schedule 3 (Additional Credits and Payments), Line 5 of your Form 1040. This reduces your total tax liability dollar for dollar.

Step 4: File Your Return

File your standard federal tax return with Form 5695 and Schedule 3 attached. Most major tax software (TurboTax, H&R Block, FreeTaxUSA, TaxAct) walks you through this automatically when you indicate you installed solar energy equipment.

Carry-Forward Rules

The Section 25D credit is nonrefundable — it can reduce your federal tax liability to zero but cannot generate a cash refund. However, unused credit does not expire in a single year. The unused portion carries forward to the following tax year (and subsequent years) until fully consumed.

Example: Your 2025 solar credit is $8,000. Your 2025 federal tax liability (after other deductions) is $5,500. You use $5,500 of the credit in 2025 and carry $2,500 forward to your 2026 tax return.

Important: carry-forward amounts from 2025 installations are still valid even though the Section 25D credit has otherwise expired. You can continue carrying forward your 2025 credit balance into 2026 and beyond until it is exhausted.

Tax Credit vs. Tax Deduction: The Key Difference

A tax credit reduces your tax bill dollar for dollar. A $7,500 credit means $7,500 less owed to the IRS, regardless of your income or tax bracket. A tax deduction reduces taxable income — worth only a percentage (your marginal rate). The Section 25D was a credit, not a deduction — one of the reasons it was so valuable.

You do not need to itemize deductions to claim the solar credit. It works whether you take the standard deduction or itemize.

Who Qualified for the 2025 Credit

  • US homeowners who purchased (not leased) their solar system
  • Primary or secondary residences (vacation homes qualified)
  • New construction where solar was included from the start
  • Any income level — no income limits applied

Leased systems: if you signed a lease or PPA agreement, the leasing company owned the system and claimed the credit — not you. This applies to 2025 as well as all prior years.

Section 2: What Changed for 2026 Solar Installs

The One Big Beautiful Bill Act (OBBBA), P.L. 119-21, signed into law on July 4, 2025, eliminated Section 25D for solar systems placed in service after December 31, 2025. It also eliminated the Section 25C Energy Efficient Home Improvement Credit (heat pumps, insulation, windows) on the same date.

This overturned the IRA's extension of both credits through 2032. For solar installations in 2026 and beyond, there is no federal residential tax credit.

What Solar Incentives Still Exist in 2026

The federal ITC's expiration does not eliminate all solar economics. The following incentives remain:

  • Net metering — a state utility commission policy, not a federal tax provision. Unaffected by OBBBA. Still available in most states (California operates under NEM 3.0 with modified export rates).
  • SREC markets — Solar Renewable Energy Certificate programs in New Jersey, Massachusetts, Maryland, Pennsylvania, and Washington DC continue. Systems generate certificates sold to utilities.
  • NY-Sun program — Upfront rebates and New York's own 25% state solar tax credit (capped at $5,000) remain active.
  • Colorado state incentives — State income tax credit and Xcel Energy solar rebates continue.
  • California SGIP — Battery storage rebate program, particularly strong for income-qualified households.
  • Community solar — Subscription-based programs available in 20+ states; no ownership or installation required, so unaffected by ITC expiration.

For a full breakdown, see: Federal Solar Tax Credit 2026: What Incentives Remain

Section 3: The Placed-in-Service Rule — Contracts Signed in 2025 but Installed in 2026

The most critical concept for anyone who contracted for solar in 2025 expecting to claim the ITC: the credit applies to the tax year in which the system is placed in service — not when you signed a contract, paid a deposit, or had panels installed on your roof.

Placed in service means the system is:

  • Fully installed
  • Passed final inspection
  • Interconnected and approved by the utility
  • Capable of generating and delivering electricity

If all of those conditions were not met by December 31, 2025, the system was not placed in service in 2025, and no federal tax credit applies, even if you signed a contract in 2023, paid in full in 2024, and had panels on the roof by October 2025.

There is no exception for contracts signed before the OBBBA was enacted. The placed-in-service date is the controlling date under the statute. If your installer suggested you could still claim the credit based on your contract date alone, that guidance is incorrect.

What to Do if You Were Expecting the Credit for a 2026 Installation

  • Verify your actual placed-in-service date with your installer (get the utility interconnection approval date in writing)
  • If the system was placed in service in 2025, claim the credit on your 2025 return — you are entitled to it
  • If the system was placed in service in 2026, no federal credit applies regardless of contract or payment dates
  • Re-evaluate your ROI using current state incentives only — net metering, SRECs, and state programs remain
  • Consult a tax professional if you have a system spanning the 2025/2026 transition

Frequently Asked Questions

Can I claim the solar tax credit if my system was installed in 2025 and I'm filing my 2025 tax return now?

Yes. If your solar system was placed in service (fully installed, inspected, and connected to the grid) by December 31, 2025, you can claim the 30% Section 25D credit on your 2025 federal tax return using IRS Form 5695, Part I. The OBBBA eliminated the credit for systems placed in service after December 31, 2025, not for those installed before that date.

What if my solar system was only partially installed by December 31, 2025?

Partial installation does not qualify. The system must be fully placed in service — installed, inspected, and interconnected with utility approval — by December 31, 2025 to claim the credit. Panels on the roof but not yet interconnected do not meet the placed-in-service standard. Contact your installer for the utility interconnection approval date.

Is the solar ITC available for systems installed in 2026?

No. The One Big Beautiful Bill Act (OBBBA, P.L. 119-21), signed July 4, 2025, eliminated Section 25D for solar systems placed in service after December 31, 2025. There is no federal residential solar tax credit for new installations in 2026 or beyond.

Does battery storage added to an existing solar system in 2026 qualify for any federal credit?

No. The OBBBA eliminated both Section 25D (solar and storage) and Section 25C (efficiency improvements) for systems placed in service after December 31, 2025. Battery storage added or installed in 2026 does not qualify for a federal tax credit, even if it is added to an existing pre-2026 solar system. California's SGIP program does offer state-level battery rebates.

What solar incentives replaced the federal ITC for 2026 installations?

No direct federal replacement exists. Available incentives are state and utility programs: net metering (all states, not affected by OBBBA), SREC markets in NJ/MA/MD/PA/DC, NY-Sun program with New York's 25% state credit (capped $5,000), California SGIP battery rebates, Colorado state incentives, and community solar subscriptions in 20+ states. The economic viability of solar in 2026 depends heavily on your state and local electricity rates.

I signed a solar contract in 2025 expecting a federal tax credit. Do I still get it?

Only if the system was fully placed in service by December 31, 2025. The credit is based on the placed-in-service date — when the system is fully installed, inspected, and connected to the grid — not the contract date, payment date, or panel installation date. If interconnection approval came in January 2026 or later, the federal credit does not apply.