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Tax Day will never be so shiny again: Federal Solar Tax Credit in 2025

Updated: Jul 14, 2025
9 min

Tatiana IvanovaAuthor

Tax Day – the income tax filing deadline, which typically falls on April 15 – isn’t the most awaited day of the year. Not for those who decided to go solar, though. If you bought and had your solar PV system installed last year, you’re likely to pay no tax at all because of the wonder called Solar Tax Credit. At least it was so until 2025. Now things have changed, and not for the better.

Key takeaways

The ITC is a tax credit that reduces your federal income tax liability dollar-for-dollar by a percentage of your solar installation costs.
The 30% federal tax credit for solar panels may end December 31, 2025 – act now to save up to $5,000-$10,000 on your solar installation.
The ITC is currently at 30%: For systems installed after January 1, 2022, the credit is 30% of the total installation cost (no limit).
Many installation costs are eligible: The credit applies to various expenses beyond just the panels, including labor and permitting fees. Keep all receipts.
You must own the system: Leased systems or power purchase agreements (PPAs) are not eligible for the ITC.
The system must be at your primary or secondary US residence: property like RVs and boats may qualify if deemed a second home by the IRS.
Consult a tax professional: Tax laws are complex, and individual situations vary. It's best to speak with a tax professional to ensure eligibility and proper filing.
Use the correct IRS forms: Residential systems use Form 5695 and Schedule 3 (Form 1040), while commercial systems use Form 3468 and Form 3800.
The credit can roll over: If the credit exceeds your tax liability in a given year, the remaining credit can be carried over to future tax years.

How does the Federal Solar Tax Credit work in 2025?

The 30% solar tax credit that saves homeowners thousands of dollars will disappear by the end of 2025. In May 2025, the House passed the "One Big Beautiful Bill" to kill the 30% tax credit on December 31, 2025, way earlier than planned.

The Senate passed its version of the "One Big Beautiful Bill" on July 1 and sent it back to the House. The Senate made a few small improvements, but they still want to end the residential solar tax credit on December 31, 2025. Now the House has to vote again. Both the House and Senate need to agree on the same bill before it goes to President Trump to sign into law.

We'll keep you posted and update this article as we get new information. Stay tuned.

If you’re thinking about solar, you have about five months left to save thousands of dollars. With the 30% tax credit, you only pay about $14,000 for a solar system that costs around $20,000 – that's $6,000 you could lose if you wait too long.

You won't lose the credit if you get your solar panels installed before the end of 2025, but you need to start soon because it usually takes 2-4 months from signing a contract to getting everything installed. Even though the law could still change, both the House and Senate want to end the credit on December 31, 2025, so don't count on getting more time. If you've been thinking about solar, now is the time to get quotes and start the process.

If you forgot to claim your ITC last year, contact a tax professional asap to amend your tax return.

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What is the Federal Solar Tax Credit?

The Solar Investment Tax Credit (ITC) was first introduced in the USA by the Energy Policy Act of 2005. To encourage Americans to use solar power, Congress proposed a solar panel tax credit worth 30% of the total solar installation cost (parts and labor), which basically meant a dollar-for-dollar reduction in the amount of income tax owed by the homeowner. For example, if the solar PV system cost $15,000, you could claim a $4,500 federal tax credit back then, which would reduce your federal income taxes due by $4,500 respectively. Easy!

Thanks to its popularity and significant contribution to renewable energy development, the ITC has been extended multiple times since it was enacted in 2006. The US solar industry has grown by more than 10,000% to reach 71.3 gigawatts of solar installed capacity (as of the end of 2019), creating nearly a quarter-million new jobs and investing billions of dollars in the economy of the country. Despite the tremendous success of the Federal Solar Tax Credit, its value started decreasing in 2019.

Climate bill extendeds Federal Solar Tax Credit until 2035

Riding on the wave of its success, Congress extended the solar ITC program till 2024. Starting in 2020, the value of the rebate would fall for 5 years before finally ending for residential solar and permanently dropping to 10% for commercial solar in 2024. But in August 2022 Joe Biden signed the Climate bill, and the ITC program was revitalized.

The Climate bill brought Solar Federal Tax Credit back to 30% and it now applies to all systems installed in 2022 and beyond. There is no cap for the maximum amount of incentive. The tax credit was supposed towill remain 30% through 2032,. In 2033, it will drop to 26% in 2033, and decrease to 22% in 2034 before ending. All in all, the Federal Solar Tax Credit extension in 2022 kepteps solar cheap and affordable for Americans. But 2025 messed up all these shiny plans.

2034 is the last chance to claim the ITC for residential solar PV system

The more you spend, the more you save

Solar PV system isn’t only about buying solar panels. It comprises a range of auxiliary equipment and services, which will make you constantly dip into your pocket. All these expenses can be claimed, including:

Solar equipment
Freight shipping costs
Solar consulting fees
Professional installer fees
Electrician fees
Engineer fees
Tools bought or rented
Wiring, screws, bolts, nails, etc.
Equipment purchased or rented (scaffolding or a man-lift, for example)
Permitting fees
Permitting service costs

As you can see, there are a lot of things to take into account. So, do keep all your receipts from the very beginning of your solar installation project. Like any tax incentive, the Federal Solar Tax Credit requires a paper trail. Don’t worry, this paper work won’t be in vain: the more solar-related expenses you can prove, the larger your credit will be.

Looking to add solar to your business? Here are the best commercial solar panels for business installations:

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M-Solar 365W Solar Panel 120 Cell BOB TXS6-365120BB Clearance

Price per Watt$0.32
Rated Power Output 365 W
Voltage (VOC)40.8V
Number of cells120
Cell TypeMonocrystalline

39% OFF

Jinko 385W Solar Panel 132 Cells JKM385M-6RL3-B Clearance

Price per Watt$0.35
Rated Power Output 385 W
Voltage (VOC)44.34V
Number of cells132
Cell TypeMonocrystalline

33% OFF

Jinko 380W Solar Panel 132 Cells JKM380M-6RL3-B Clearance

Price per Watt$0.38
Rated Power Output 380 W
Voltage (VOC)44.22V
Number of cells132
Cell TypeMonocrystalline

Owner? Here’s your tax credit

Generally, the majority of solar system owners are eligible to claim the solar ITC. The key word here is owner: It is crucial that you own the solar PV system (i.e. you purchased it with cash or through financing but you are neither leasing nor are in an arrangement to purchase electricity produced by a system you do not own).

Here are some other facts regarding the Federal Tax Credit eligibility:

The solar PV system must be located at your primary or secondary residence in the USA.
You must have any tax liability.
The solar PV system must be new or used for the first time. The credit can only be claimed on the ‘original installation’ of the solar equipment.
Solar system for an RV or boat must be accepted by the IRS as a second home.

Remember, every individual's tax situation is different. Consult a tax professional to make sure you’re eligible to claim the Federal Tax Credit.

How to get Solar Tax Credit

Once you’ve installed your solar PV system, collected all the receipts and confirmed you’re eligible, it’s time to do some paperwork. There are just two forms to fill in:

Residential solar PV systems	Commercial solar PV systems
1. IRS Form 5695, Residential Energy Credits 2. Schedule 3 (Form 1040), U.S. Individual Income Tax Return	1. IRS Form 3468, Investment Credit 2. Form 3800, General Business Credit

Follow our guide on claiming Solar Tax Credit and start planning your best Tax Day ever. Because you deserve it.

Are only solar panels eligible for the residential clean energy credit?

The residential clean energy credit isn't just for solar panels. Homeowners can also use it for other energy efficiency projects, including:

Solar water heaters
Small wind turbines
Biomass fuel stoves
Fuel cells
Geothermal heat pumps

There are also some state-specific solar incentive programs, as these can provide additional savings. Read more about solar incentives in different states.

Tatiana Ivanova

Author

With a degree in Linguistics, Tatiana uses her vast experience in technical translation to deliver complicated concepts in simple words. She joined the company in 2020 as a contributing writer to become the person to influence Blog’s development.