We know, taxes are a pretty mind-numbing topic, but when it comes to solar, there’s a bright side: you can use tax incentives to save some serious cash.
The Federal Solar Tax Credit, also known as the Investment Tax Credit (ITC), can be a hugely significant incentive for homeowners looking to install solar panels. While this tax incentive was designed to diminish over time, in 2025, it continues to offer homeowners substantial savings on solar power systems.
Don’t worry, tax talk might be serious (and boring) business, but we’ll keep it as straightforward and beginner-friendly as possible. So, let’s find out how you could potentially save thousands of dollars on your solar power system.
The Federal Solar Tax Credit allows homeowners to deduct a percentage of the total cost of a solar energy system from their federal income taxes. For systems purchased and installed in 2025, you’re allowed to claim 30% of the eligible costs.
This not only includes the solar panels, but all of the other solar equipment you purchase, including your solar inverter, batteries, ground mount or racking hardware, cables, and pretty much any other piece equipment you incorporate into your system. On top of that, even labor costs, permit fees, and any other associated expenses can be claimed.
As outlined in the U.S. Department of Energy’s Homeowners' Guide to the Federal Tax Credit for Solar PV, the ITC was designed and introduced to make solar installations more accessible and affordable for homeowners across the country.
Ideally, this would reduce dependence on the grid and encourage more Americans to adopt independent and renewable energy sources. And the best part? It directly reduces the amount of federal tax you owe, dollar-for-dollar.
Here’s the scoop in the most basic terms:
Originally, the ITC was set to expire in 2022, but thanks to the Inflation Reduction Act (IRA), it has been extended until 2034.
On paper, that means homeowners should be able to benefit from the credit in some form until the 2034 tax year. The value of the credit depends on the year you install your system. Here’s a handy table for reference:
This schedule means that if you install your system between 2022 and 2032, you’ll enjoy the full 30% credit.
Let’s say buying and installing your solar system costs you roughly $20,000, that 30% credit could potentially save you $6,000 on your taxes. That’s a massive boost for your budget and a major incentive to switch to solar sooner rather than later.
Another thing to keep in mind is the fact that these types of tax incentives are never written in stone. While you may assume you have until 2032 to secure that 30% tax rebate on your solar panel system, the terms of the ITC could be altered, meaning the rebate could be lowered, or it could even be canceled entirely between now and 2032. With a recent administration change in the federal government, who knows if these tax incentives will remain in place for much longer, so why take the risk?
If you’re not sure whether your solar investment qualifies for the ITC, here’s a quick checklist to keep you on track:
Claiming a tax credit through the ITC is a process that happens when you file your yearly federal tax return. While we’re in no way qualified to act as tax professionals, here’s a basic step-by-step guide you would follow:
Remember, you must directly own your solar energy system, so leasing one does not mean you will qualify for the tax rebate.
You also need to check that you have sufficient tax liability (meaning you owe federal taxes). The credit can only be used towards taxes owed; if this doesn’t apply, the credit may be carried over to the following year.
If you’re filing your own taxes, there’s a step-by-step guide for filling out Form 5695 available through the IRS.
If you’re not filing your own taxes, or you work with some sort of accountant or tax expert, you can also gather all supporting documentation from your solar installation, like all of your receipts, and make sure you can provide them.
Once Form 5695 is completed, you’ll need to transfer the relevant information to Schedule 3. This form lets you claim both non-refundable and refundable credits. Finally, include this information on Form 1040, which is your primary tax filing document.
Again, if you’re not filing on your own, make sure that you inform your accountant that you’re planning to take advantage of the solar tax credit federal program when preparing your returns. They’ll be able to help you file your claim.
If you’re still not convinced, here’s just a few of the most obvious reasons why it’s worth checking your eligibility for the ITC while you know that it’s available:
Even though equipment costs have dropped substantially over the past few years, installing a solar power system can still be a significant investment. If you can use the tax credit to slash your costs by up to 30%, it means more money stays in your pockets.
We always like to view solar power systems as an investment, as they’re designed to save you money over their lifespan. If you can cut your upfront costs through tax rebates and going with a DIY setup, you’re going to see a return on that investment much faster, which means you’ll be in the green for more of the lifespan of your equipment.
A solar power system not only saves you money on energy bills and helps you manage blackouts; it can also increase the value of your home. Future buyers appreciate knowing that the property comes with a solar power system already in place.
While the exact amount that your system will increase the value of your home is difficult to predict, studies show that a pre-installed solar power system tends to increase home values by roughly 4.1%. With the tax rebate, you’re enjoying that boost in property value, without having to pay as much to get it.
If you had put aside a set amount of money to invest into a solar power system, knowing that you will receive a 30% tax rebate might allow you to expand your budget and spend up to 30% more on equipment.
Think of it like a boost to your solar budget. Let’s say you were going to spend somewhere around $10,000 on a residential solar power system. Factoring in the 30% tax rebate might allow you to increase your budget closer to $13,000, which could mean installing a system that generates more free solar electricity. Think of it as a little boost from the government.
While the Federal Solar Tax Credit can be a hugely beneficial incentive, there are a few things to keep in. For starters, make sure that you keep accurate records of all installation costs, as this will make it much easier when it comes time to claim for the full credit. Missing receipts can really complicate your tax filing.
We mentioned it before, but it’s worth repeating— always remember that tax policies can change at any time with very little warning. Keep an eye on the most current guidelines and speak with a tax professional if you’re unsure about your eligibility.
We’d also recommend looking into additional state and local solar incentives to help you reduce your net solar costs. Once your system is up and running, look into programs like net metering to help you save money on your electricity bills, which can also help you see an earlier return on your investment.
Again, read through the U.S. Department of Energy’s Guide to the Federal Tax Credit for Solar Photovoltaics. If you’re looking for more clarity on the ITC, you can also contact the Department of Energy’s Solar Energy Technologies Office by phone or email.
The Federal Solar Tax Credit remains a game-changer for homeowners looking to invest in solar equipment. It can reduce the cost of your solar power system by up to 30%, putting more money back in your pocket.
With that said, just because the ITC was originally scheduled until 2034, you shouldn’t just assume that you have all that time to take advantage of it. Tax credits like these can be altered, reduced, or even canceled, especially so soon after a major shakeup in the federal government.
It’s important to remember that the decision to expand and increase the credit to 30% between 2022 and 2032 was made by the Biden administration. With President Trump back in office, there are no guarantees that the credit will stay the same.
Stay informed and keep an eye on policy changes so you can make the most of the incentives while they’re available. It’s also important to remember that it doesn’t matter where you purchase your solar equipment from, so don’t let some pushy installer say you only qualify if you buy through them, as DIY setups are just as eligible.
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