Federal Solar Tax Credit Guide for Homeowners (June) (2023)

Faith Wakefield is a writer based in North Carolina. She holds economics and English degrees from UNC Chapel Hill, and her work has been featured on EcoWatch, The World Economic Forum and Today's Homeowner. In her free time, she loves to binge-watch personal finance videos on YouTube, collect books and spend time in nature.

Karsten Neumeister is an experienced energy professional with subject-matter expertise in energy policy and the solar and retail energy industries. He is currently the Communications Manager for the Retail Energy Advancement League and has prior experience writing and editing content for EcoWatch. Before EcoWatch, Karsten worked for Solar Alternatives, curating content, advocating for local renewable energy policy and assisting the solar engineering and installation teams. Throughout his career, his work has been featured on various outlets including NPR, SEIA, Bankrate, PV Mag and the World Economic Forum.

Since the passing of the Energy Policy Act of 2005, the federal government has incentivized homeowners to switch to solar energy with the solar investment tax credit (ITC), also known as the federal solar tax credit. The rate of this credit has fluctuated over the years but currently allows you to claim 30% of your total solar system costs as a federal tax credit.

We at the Guides Home Team have reviewed the top solar providers to help you navigate the solar buying and installation process. This guide covers how to qualify and file for the federal solar tax credit so you can get money back on your solar power system.

The solar investment tax credit is a credit you can claim on your federal income taxes. The ITC is not a tax deduction or a tax refund. Instead, it reduces what you owe in taxes. The credit is currently valued at 30% of your total solar photovoltaic (PV) system cost.

The federal solar tax credit is available to any U.S. homeowner, condo owner or cooperative housing corporation member, as long as you own a solar panel system. You cannot claim the credit if you are leasing solar panels.

You can claim the credit for the tax year you turn on your system. For example, if the installation is completed in December 2023 but you can't book an inspection and gain permission to operate (PTO) from your local utility until January 2024, you can only claim the credit for 2024.

You can only claim the federal solar tax credit once. If the taxes you owe are less than the value of the credit, the remainder will roll over for a maximum of five years.

For example, if you install a solar energy system worth $19,000, you’ll owe 30% ($5,700) less on your federal tax return. If your tax liability is less than $5,700, the remainder of the credit will be applied to your federal income tax liability the following year — you won't be refunded the remaining credit amount in cash.

As outlined by the Inflation Reduction Act of 2022, the ITC will decrease to 26% in 2033 and drop to 22% in 2034. It will be canceled completely in 2035 unless Congress renews it.

You claim the solar tax incentive as part of your annual federal tax return with the Internal Revenue Service (IRS). Your solar provider can supply the proper documentation and instructions for applying for the credit. Most reputable installers typically provide this documentation along with the quote or contract you sign before installation so you know the value of the credit up front. We have listed the essential steps in claiming the credit below:

If you are filing for the first time, we recommend you consult a tax expert and your solar provider to ensure you are correctly claiming the ITC.

In addition to the ITC, we encourage you to check for any rebates, state tax credits, and sales and property tax exemptions available in your local area. For example, if you’re looking for incentives for solar in California, you can take advantage of the Self Generation Incentive Program (SGIP). This program provides an upfront rebate for installing an energy storage system like a solar battery.

You can use the Database of State Incentives for Renewables & Efficiency (DSIRE) to see which rebates and state tax credits are available in your ZIP code. States may also offer other solar energy credits or incentive programs like net metering, through which you can earn billing credits for any excess electricity your panels produce and send back to the grid.

Garrett Nilsen, the deputy director of the U.S. Department of Energy's Solar Energy Technologies Office, recommends the following when it comes to solar incentives:

"Incentives can vary across the country, so it's important for homeowners to understand what they’re eligible for from the federal and local levels before going solar. An experienced local installer should be able to assist you in claiming any state and local incentives, as well as the ITC."

The Office of Energy Efficiency & Renewable Energy (EERE) states the following criteria to determine federal solar tax credit eligibility:

If your solar system installation is on a rental or vacation property that you own, you can only claim the ITC if you live at that property for at least part of the year. Even then, you can only claim the portion of the credit that reflects how much time you spent living there.

For instance, if the solar panel system on your rental property cost $20,000, then the full solar energy tax credit of 30% would be worth $6,000. However, if you live at that property 50% of the time (say six months out of the year), you’d only be eligible for $3,000, or 50% of the full credit value.

The year that you install your solar panels can affect how large of a tax credit you earn:

According to the EERE, the federal solar tax credit covers the following items:

The federal solar tax credit makes switching to solar a cost-effective and worthwhile investment. We suggest you contact a tax professional for tax advice, as well as the IRS and your solar provider to claim the ITC.

If you are still searching for a reputable solar company, use our tool below to compare solar providers near your home.

The Federal Solar Tax Credit is worth 30% of your total solar panel equipment cost in 2023. The 30% credit is available through the end of 2032. After installing your solar panel system, you will apply for this credit through your federal tax return.

There is no income limit on the ITC. However, you need a large enough tax liability to claim the full credit. The remaining credit will roll over year to year if you owe less taxes than the credit.

No. A tax credit offsets the balance of taxes due to the government, so if you owe no taxes, there is nothing to offset, and you can't take advantage of the ITC.

Technically, you cannot claim the solar tax credit twice. The unused amount of the credit will continue to roll over to the next tax year if you owe less taxes than the credit. If you own more than one home with solar, you might be eligible to claim the credit more than once. We recommend consulting a tax expert to determine whether you can take advantage of this.

Faith Wakefield is a writer based in North Carolina. She holds economics and English degrees from UNC Chapel Hill, and her work has been featured on EcoWatch, The World Economic Forum and Today's Homeowner. In her free time, she loves to binge-watch personal finance videos on YouTube, collect books and spend time in nature.

Tori Addison is an editor who has worked in the digital marketing industry for over five years. Her experience includes communications and marketing work in the nonprofit, governmental and academic sectors. A journalist by trade, she started her career covering politics and news in New York's Hudson Valley. Her work included coverage of local and state budgets, federal financial regulations and health care legislation.

Karsten Neumeister is an experienced energy professional with subject-matter expertise in energy policy and the solar and retail energy industries. He is currently the Communications Manager for the Retail Energy Advancement League and has prior experience writing and editing content for EcoWatch. Before EcoWatch, Karsten worked for Solar Alternatives, curating content, advocating for local renewable energy policy and assisting the solar engineering and installation teams. Throughout his career, his work has been featured on various outlets including NPR, SEIA, Bankrate, PV Mag and the World Economic Forum.