Federal Solar Tax Credit 2026

What the credit covers

Section 25D of the Internal Revenue Code (Residential Clean Energy Credit) covers:

• Solar PV panels and balance-of-system equipment (inverters, racking, wiring)
• Labor costs for on-site preparation, assembly, installation, wiring, interconnection
• Permit fees, inspection costs, and utility interconnection fees
• Sales tax on equipment
• Battery storage technology with capacity ≥ 3 kWh (since 2023)
• Solar water heating systems

What it does NOT cover

• Roof repair or replacement (unless the roof is solar-integrated like Tesla Solar Roof)
• Tree removal or yard work to enable solar exposure
• Carports or pergolas (unless integral to solar system structurally)
• Maintenance contracts and extended warranties

How to claim — IRS Form 5695

1. Wait for "placed in service" date. System must be commissioned (PTO from utility) by Dec 31 of the tax year you claim.
2. Gather documentation. Final invoice itemizing equipment + labor. Permit receipts. PTO letter from utility.
3. Fill out Form 5695 Part I. Line 1: solar electric property cost. Multiply by 0.30. Apply to Schedule 3 Line 5a, then 1040 Line 20.
4. Carry-forward if needed. If credit > tax owed, unused portion carries forward to next year via Form 5695 Line 14 of next year.

Worked example — $25,000 solar system

• System installed cost: $25,000 (panels + inverter + labor + permits)
• Federal ITC at 30%: $7,500
• Your federal income tax owed for 2026: $9,800
• After credit: $9,800 − $7,500 = $2,300 owed
• Refund/owed swing: $7,500 in your pocket

Carry-forward example — limited tax liability

Same $25,000 system, but you only owe $4,000 in federal tax for 2026:

• Apply $4,000 of the $7,500 credit → tax owed becomes $0
• Remaining $3,500 carries forward to 2027
• If you owe enough tax in 2027, that $3,500 reduces your 2027 bill
• Carries forward indefinitely — but the credit cannot exceed your liability in any given year

Battery storage — the 2023 expansion

Before 2023, batteries qualified only when installed simultaneously with solar. Post-2023, the IRA expanded:

• Batteries ≥ 3 kWh capacity qualify for 30% credit
• Standalone batteries (no solar) qualify since 2023
• Battery added to existing solar system qualifies

Examples that qualify:

• Tesla Powerwall 3 (13.5 kWh) — ~$15,000 → $4,500 credit
• Enphase IQ Battery 5P (5 kWh) — ~$6,000 → $1,800 credit
• Franklin aPower (15 kWh) — ~$13,500 → $4,050 credit
• FranklinWH or Generac PWRcell systems

Stacking with state and utility incentives

ITC is claimed on the cost after state and utility incentives if those incentives reduced what you paid:

• If you got a $2,000 state rebate paid to installer → ITC applies to $25,000 minus $2,000 = $23,000 → $6,900 credit
• If you got a $1,500 state income tax credit → ITC still applies to full $25,000 (state tax credit doesn't reduce purchase price) → $7,500 credit

Check Form 5695 instructions and consult a CPA in complex stacking situations.

What if I lease or PPA?

If you lease or sign a PPA (power purchase agreement), you do NOT get the ITC. The leasing company gets it. Lease/PPA pricing should reflect this. Always model lease/PPA against ownership (with ITC) — ownership wins for nearly all homeowners with sufficient tax liability.

The 2032 phasedown — does it matter to you?

ITC is 30% through 2032. Then:

• 2033: 26% residential (Section 25D)
• 2034: 22%
• 2035+: 0% residential (Section 25D expires)

If you're in 2026, the phasedown is years away — no urgency from this clock alone. But: utility electricity rates are rising 6–12%/year in many states. Each year you wait costs you saved electricity. Most analysis says install when payback math works for you, regardless of the phasedown.