The federal solar Investment Tax Credit (ITC) is the single most impactful financial incentive for going solar. It directly reduces your federal income tax by a percentage of your solar system’s cost — and it’s currently at its highest level in years.
How the Solar Tax Credit Works
The ITC is a dollar-for-dollar reduction in the income taxes you owe. If you install a qualifying solar energy system, you can claim 30% of the total system cost as a tax credit. For a $20,000 solar installation, that’s a $6,000 credit — money taken directly off your tax bill.
This is a tax credit, not a deduction. A deduction reduces your taxable income; a credit reduces the actual tax you owe. This makes the ITC extremely valuable.
Current ITC Schedule
Thanks to the Inflation Reduction Act of 2022, the ITC is set at 30% for systems installed from 2022 through 2032. The credit then steps down to 26% in 2033, 22% in 2034, and is scheduled to expire for residential systems after 2034 (unless Congress extends it again).
This means you have several years at the full 30% rate, but there’s a strong financial incentive to act sooner rather than later.
What Costs Qualify
The ITC applies to the total cost of your solar energy system, including solar panels, inverters, mounting hardware, battery storage systems charged by solar, electrical wiring and conduit, labor costs for installation and permitting, and sales tax on eligible equipment.
Essentially, everything on your installer’s invoice that’s related to the solar and battery system qualifies.
Who Can Claim the Credit
To claim the ITC, you must own the solar system (leased systems and PPAs don’t qualify — the leasing company claims the credit instead), have sufficient tax liability to use the credit, and the system must be installed at your primary or secondary residence in the U.S.
If your tax liability is less than the credit amount in the installation year, you can carry the unused portion forward to future tax years.
How to Claim the Credit
File IRS Form 5695 (Residential Energy Credits) with your annual tax return. Your solar installer should provide documentation of the total system cost. If you’re unsure about the process, a tax professional can ensure you maximize the credit.
Bonus Credits
The Inflation Reduction Act introduced additional bonus credits for systems using domestically manufactured components (up to 10% additional) and for systems installed in low-income communities or on affordable housing (up to 20% additional). These bonuses can push the total credit above 30% for qualifying installations.
Combining with State Incentives
The federal ITC stacks with state and local incentives. Many states offer their own tax credits, rebates, or performance payments on top of the federal credit. For example, claiming a $6,000 federal credit doesn’t reduce the basis for a state rebate. Combined, these incentives can cover 40–60% of your system cost.
