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How Do Solar Tax Credits Work?

Are you curious about how solar tax credits work? Upgrading to solar panels can save you money on utilities, and lower your taxes.
Solar Panels
5 minutes
Written by:
Joey Cheek
Updated on:
November 2, 2022

Are you curious about how solar tax credits work? Upgrading to solar panels can save you money on utilities, and lower your taxes. The solar panel tax credit available to American homeowners allows you to claim up to 26% on systems installed before January 1st, 2023, and 22% on systems installed after December 31, 2022 but before January 1, 2024.

In this guide, we’ll help you understand how solar panel tax credits work, and why upgrading your home could be a major benefit to you in the short and long-term.

What Are Solar Tax Credits?

Solar panel installation isn’t just a great investment for your home and the planet — they can also benefit your bank account. A federal solar tax credit gives you money in exchange for buying solar photovoltaics. 

The investment tax credit, or ITC, is a residential solar panel tax credit for homeowners. It’s worth 30% of your installation costs, and there are additional credits you may claim if you qualify. 

Since its adoption, the ITC credit has helped expand renewable energy across the United States by 200x since 2006. It’s made it easier for families to upgrade their homes and recoup some of the cost, while still benefiting from the long-term advantages of going solar.

The ITC allows you to choose the best solar system for your home with greater confidence. You know that you can recover some of the funds, and you can lower some of your tax liability by improving your home and living more sustainably.

Benefits of Solar Tax Credits

There are several reasons why choosing a solar system is a great investment, and the solar tax credits are the perfect reason to upgrade today. 

1. Get Paid for Using Renewable Energy

Solar tax credits have helped the United States’ use of solar power expand rapidly since 2006, but currently, solar power only makes up about 3% of the country’s electrical systems. In order to make the country more sustainable, homeowners have to upgrade their properties by taking advantage of the best opportunities. 

Switching to solar panels also lowers your electric bill by up to $1,500 each year. And the first year you install, you qualify for 22-26% of your installation costs off your tax debt.

Still deciding which panels to upgrade to? Try our quiz

2. Save on More Than Just the Panels

Your federal tax return will benefit from more than just solar panels thanks to the ITC. The credit also covers expenses related to PV cells, contractor labor costs, energy storage devices with a capacity of at least 3 kilowatt-hours, and sales taxes on some eligible purchases. 

3. Combine With Other Renewable Energy Incentives 

You can use the solar tax credit on top of other incentives you qualify for, such as rebates through your state government, electric company, or renewable energy certificates. You can also use any applicable state tax credit along with the ITC to further lower this year’s tax bill. 

How Long Will The Solar Tax Credit Work?

You can claim tax credits for solar panels through 2035. You have to claim the credit for the tax year the installation took place. The catch is that you must own the solar panels yourself, not lease them through a power purchase agreement (PPA). In that case, you don’t technically own the solar system, so you aren’t eligible for any federal tax credits.

There is no limit on the ITC, so any family can benefit from upgrading their home. You do have to upgrade your home, though, rather than purchase a house that already has solar panels installed. 

Can I Use the ITC as a Refund? 

No, if you don’t owe taxes, then you won’t receive the solar panel tax credit as a refund. It only lowers your taxable income, so you have less liability to the IRS. 

How to Claim the Solar Panel Tax Credit

You’ll have to complete IRS Form 5695 to prove you’re eligible for the energy credit. You can then add it to your Schedule 3 and Form 1040. 

If your solar tax credit exceeds your tax liability, don’t worry; you can carry over any remaining credit to the next year, and use it to lower your debt when tax season rolls around again.

In order to complete Form 5695, you’ll need to know your home’s qualified solar electric property costs. Let’s say you install solar panels for $20,000. You will list that cost on line 1a. Then, assuming you have no other costs to add for heat pumps or wind turbines, you can move on to line 6a. Here, you must multiply your total costs by the applicable tax credit amount (26% = 0.26). 

The result will be how much you save. So, in our example, $20,000 x 0.26 = $5,200 in credit.

Upgrade Your Solar Panels Today

Contact today to begin your home’s switch to solar power. Whether you already have existing panels or are new to renewable energy, we can help you find the right solar panel system. 

Joey Cheek
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Meet the author:

Joey Cheek

Joey Cheek spent 10 years on the US National Speedskating Team where he competed in two Olympic Games, winning gold, silver, and bronze medals. He attended Princeton before diving into the startup and tech world. In 2011 he launched a livestreaming platform for sports before leading a team of engineers building next-gen news and content apps for Fortune 100 companies. He is the CEO and co-founder of, whose mission is to move the earth to cheap, abundant, carbon-free energy.

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