The Federal Solar Tax Credit (ITC), Explained

The federal solar tax credit — officially the Residential Clean Energy Credit (IRS Form 5695), often called the ITC — has historically been the single biggest incentive for home solar in the US. This guide explains how it works and, importantly, why you should verify the current rules before you buy.

Important: Solar incentive law has changed repeatedly, and residential credit rules were revised in recent legislation. The details below explain how the credit has worked historically. Do not rely on this as current tax advice — confirm today’s eligibility, percentage and deadlines with the IRS and a qualified tax professional for your specific situation.

How the credit has worked

• It’s a tax credit, not a rebate — it reduces the federal income tax you owe, dollar-for-dollar.
• Historically it was 30% of the total system cost (equipment + installation) for eligible residential systems.
• It applied to the year the system was placed in service, and unused credit could often be carried forward to future tax years.

So on a $24,000 system, a 30% credit would be worth $7,200 off your tax bill — turning the net cost into about $16,800.

Who has typically qualified

• You own the system (bought with cash or a loan). Leases and PPAs generally don’t qualify the homeowner — the third-party owner claims it.
• It’s installed at a US residence you live in.
• You have enough tax liability to use the credit (or carry it forward).

What it usually covers

• Solar panels and inverters.
• Mounting and balance-of-system hardware.
• Labor, permitting and inspection costs.
• Often home battery storage meeting capacity rules.

Stacking with other incentives

The federal credit has often stacked with state tax credits, rebates, SRECs and utility incentives. Browse programs in your area with the DSIRE database. Note that some state incentives reduce the basis used for the federal credit.

How this affects your calculator results

Our Solar Savings Calculator applies a default incentive percentage to estimate net cost, and the Solar Payback Calculator lets you enter your own incentive percentage. Adjust it to match whatever you actually qualify for today.

Bottom line

The ITC has made a major difference to solar economics. But because the rules move, confirm the current credit before signing anything — with the IRS and a tax professional — then plug your real number into the calculators.

Educational information only, not tax or financial advice.