You may get money back through federal and state tax credits, but not as a refund in the traditional sense
The federal government offers a Investment Tax Credit (ITC) that lets you deduct a percentage of your solar installation cost from your federal income tax bill. For 2024, that percentage is 30 percent of the total cost. If you install a $10,000 system, you can reduce your tax liability by $3,000. This is not a refund that arrives in your bank account — it is a credit that lowers what you owe.
The key difference: a tax credit reduces your tax bill dollar-for-dollar, while a tax deduction reduces your taxable income. A refund is money the government sends you after you have overpaid. The solar ITC works like a credit, so if you owe $2,500 in federal taxes and your solar credit is $3,000, your bill drops to zero. Whether you receive the extra $500 as a refund depends on whether you have other tax situations that create a refund — it is not automatic.
Some states offer their own solar credits or rebates on top of the federal credit. These vary widely by state and change year to year. A few states send rebates directly to your bank account after installation; most reduce your state tax bill the same way the federal credit does.
Key Takeaways
- The federal solar Investment Tax Credit covers 30 percent of installation costs and reduces your federal tax bill, not a separate refund.
- You claim the solar credit on your federal tax return the year the system is installed and operational, using IRS Form 5695.
- If your tax bill is smaller than your solar credit, you may carry the unused credit forward to future tax years.
- State solar credits and rebates vary by location; some states offer cash rebates while others offer tax credits similar to the federal program.
- You must own the solar system outright or through a loan to claim the credit; leased systems and power purchase agreements do not may have access to.
How the federal solar tax credit works on your return
You claim the solar ITC using IRS Form 5695, which you file along with your regular 1040 tax return. The form asks for the cost of your system, the date it was installed, and the address where it operates. You will need documentation from your installer showing the total cost and the date the system became operational.
The credit applies only to the tax year when your system is installed and producing power. If you install panels in June 2024, you claim the credit on your 2024 tax return, filed in early 2025. You do not have to wait until the following year.
If your total federal tax liability for the year is less than your solar credit, the unused portion carries forward to the next tax year. For example, if you owe $2,000 in federal taxes but your solar credit is $3,000, you use $2,000 of the credit in year one and carry the remaining $1,000 forward to year two. This carryforward continues indefinitely until you have used the entire credit.
State solar credits and rebates vary by where you live
About half of U.S. states offer some form of solar incentive beyond the federal credit. These programs fall into three categories: state tax credits (similar to the federal model), direct cash rebates, and performance-based incentives that pay you over time based on the electricity your system produces.
States with state tax credits include New York, Massachusetts, and Connecticut. These work like the federal credit — you claim them on your state tax return and reduce your state tax bill. States with direct rebates, such as California and New Jersey, typically pay your installer or send you a check after the system is inspected and approved. A few states, including Vermont and Maine, offer performance incentives that pay you annually based on how much electricity your system generates.
The percentage, dollar cap, and may be able to access rules differ by state and change frequently. Your installer can usually tell you what your state offers, or you can search the Database of State Incentives for Renewables and Efficiency (DSIRE) at dsireusa.org, which tracks all state programs.
Ownership matters: leases and power purchase agreements do not may have access to
You can only claim the federal solar tax credit if you own the system outright or finance it through a loan. If you lease your solar panels or enter a Power Purchase Agreement (PPA) — where a third party owns the system and you buy the electricity it produces — you do not may have access to for the credit. The credit goes to whoever owns the equipment.
This is an important distinction when comparing costs. A leased system may have a lower upfront cost, but you forfeit the 30 percent federal credit and any state incentives. An owned system costs more initially but generates tax credits that offset the expense. Run the numbers with your installer to see which option makes financial sense for your situation.
If you refinance a solar loan or change ownership of the system after installation, the credit still belongs to whoever owned it at the time it was installed and became operational. You cannot transfer it to a new owner.
What documentation you need to claim the credit
When you file your tax return, keep these documents on hand in case the IRS requests them: the invoice or receipt from your installer showing the total system cost, proof that the system was installed and operational in the tax year you are claiming the credit, and the address where the system is located. Your installer should provide most of this information automatically.
If you use a tax preparer or file electronically, they will ask you for the system cost and installation date. You do not have to submit documentation with your return, but the IRS can ask for it later if they audit your return. Keeping records for at least three years after you file is standard practice.
The 30 percent credit is scheduled to decrease in future years
The federal solar ITC is currently set at 30 percent through 2032. After that, it decreases: 26 percent in 2033, 22 percent in 2034, and expires at the end of 2034 for residential systems. Commercial systems have a different schedule. These dates can change if Congress passes new legislation, so check the IRS website or your installer's information closer to those years if you are planning a future installation.
The credit applies to the cost of the system itself, including panels, inverters, wiring, and labor. It does not cover the cost of a battery backup system unless the battery is charged primarily by your solar panels. If you add a battery later, you may be able to claim a separate credit for that addition in the year it is installed.
What happens if your tax credit is larger than your tax bill
If your solar credit exceeds your total federal tax liability for the year, you cannot receive the excess as a refund. Instead, you carry it forward to future years. For example, if you owe $1,500 in federal taxes and your solar credit is $4,000, you use $1,500 of the credit in year one and carry $2,500 forward to year two. In year two, if you owe $2,000, you use $2,000 of the carried-forward credit and carry $500 to year three.
This carryforward has no time limit, so you can use the credit over many years if needed. However, if you never owe enough federal tax to use the entire credit, the unused portion is lost. This is more likely if you have low income or already receive large tax deductions that reduce your tax bill.
Frequently Asked Questions
Can I claim the solar credit if I install panels in December?
Yes, as long as the system is installed and operational (producing power) by December 31 of that tax year. The installation date is what matters, not when you file your return. If the system is not yet operational by year-end, you claim the credit the following year.
Do I have to own my home to claim the solar credit?
No, you must own the solar system, but you can own it whether you own your home or rent. Renters who install a system they own can claim the credit. However, most rental agreements prohibit permanent installations, so this is uncommon.
What if I sell my house before I use the entire solar credit?
The credit stays with you, not the house. You carry any unused portion forward to future tax years and continue using it on your personal tax return, even after you move.
Can I claim the solar credit and a state rebate for the same system?
Yes. The federal credit and state incentives are separate programs. However, some states reduce the federal credit amount before calculating their own incentive, so the total may be less than the sum of both. Check your state's rules or ask your installer.
Does the solar credit apply to roof repairs or electrical upgrades needed for installation?
The credit covers the cost of the solar system itself and necessary electrical work to connect it to your home. Roof repairs needed only because of the installation may not may have access to. Your installer can clarify what costs are included in the system price and what are separate.