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Frequently Asked Questions

What is the federal solar tax credit and what percentage does it cover? The federal solar tax credit — officially the Residential Clean Energy Credit under Section 25D of the Internal Revenue Code — covers 30 percent of qualifying costs for solar panels, solar water heaters, battery storage, and related equipment installed on a primary or secondary residence. It is available at 30 percent through 2032.

What costs are included in the solar tax credit calculation? Qualifying costs include solar panels, inverters, racking hardware, wiring and conduit, battery storage co-installed with or after the solar system, labor for installation, and sales tax on all qualifying equipment and materials. Permit fees and inspection fees may also qualify. Roof repair costs necessary before installation do not qualify unless the roofing material is itself an integral solar component.

How is the solar tax credit claimed on your federal tax return? The solar tax credit is claimed using IRS Form 5695 (Residential Energy Credits), which calculates the credit based on qualifying expenditures and carries the result to Form 1040. The system must be placed in service (operational) in the tax year the credit is claimed. Any unused credit carries forward to subsequent years.

Do solar leases and PPAs qualify for the solar tax credit? No. Only the system owner can claim the Section 25D credit. Homeowners who use a solar lease or PPA do not own the system and cannot claim the credit — the third-party company that owns the system claims it instead. This ownership distinction is one of the primary financial arguments for choosing a loan over a lease or PPA.

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