sparkle-illustration

Register for a NerdWallet account to access simple tax filing for a $50 flat fee, powered by 

ColumnTax Logo

Solar Tax Credit: What It Is and How It Works In 2024

The residential clean energy credit can help you to recoup as much as 30% of the cost of solar panels.
Andy Rosen
By Andy Rosen 
Updated
Edited by Pamela de la Fuente

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

Nerdy takeaways
  • The U.S. government offers a solar tax credit that can help you recoup up to 30% of the cost of installing a solar power system.

  • The residential clean energy credit also covers other types of renewable energy projects undertaken by homeowners, subject to certain guidelines.

  • To claim the solar tax credit, you’ll have to fill out IRS Form 5695.

  • You can claim the tax credit if you receive other clean energy incentives for the same project, although this might result in a smaller credit.

If you installed solar panels, you may be in line for a tax break when you file your return. The U.S. government offers a solar tax credit that can reach up to 30% of the cost of installing a system that uses the sun to power your home. 

» Need to jump ahead?

NerdWalletTaxes Logo

Simple tax filing with a $50 flat fee for every scenario

With NerdWallet Taxes powered by Column Tax, registered NerdWallet members pay one fee, regardless of your tax situation. Plus, you'll get free support from tax experts. Sign up for access today.

for a NerdWallet account

checkmark

Transparent pricing

Hassle-free tax filing* is $50 for all tax situations — no hidden costs or fees.
checkmark

Maximum refund guaranteed

Get every dollar you deserve* when you file with this tax product, powered by Column Tax.
checkmark

Faster filing

File up to 2x faster than traditional options.* Get your refund, and get on with your life.

*guaranteed by Column Tax

illustration

What is the federal solar tax credit?

Although this tax break is often referred to as the solar tax credit, its official name is the residential clean energy tax credit. The credit can cover expenses such as equipment and installation of solar panels, but it doesn’t apply to structural work made solely to support panels. In some cases, the tax credit can be combined with state incentives and utility-funded programs that support clean energy. 

The amount available for solar tax credits can vary, depending on what you spent on the project and when you completed it. But these incentives should be available in some form to homeowners who place a qualifying system in service anytime between 2017 and 2034.

🤓Nerdy Tip

The federal solar tax credit is an investment tax credit, or ITC. That basically means it’s an incentive meant to spur investment in something the government wants to support. In 2022, President Joe Biden signed the Inflation Reduction Act, which extended solar tax credits through 2034. 

Solar tax credit 2024

The solar panel tax credit for 2023 (taxes filed in 2024) is 30% of eligible costs. It will remain at 30% through 2032.

How does the solar tax credit work?

The solar tax credit allows you to use a part of the cost of a solar power system to reduce the income taxes you owe. The U.S. Department of Energy says the tax savings on an average solar installation can reach $7,500

U.S. Department of Energy. Free Solar Panels? Don’t Get Burned.. Accessed Feb 14, 2024.
. The actual percentage of the cost you can claim varies based on the year your system was activated:

System in service

Credit amount

2017-2019.

30%.

2020-2021.

26%.

2022-2032.

30%.

2033.

26%.

2034.

22%.

Is the solar tax credit refundable?

No. The solar tax credit can save you money on your tax bill, but the amount of your credit can’t exceed the total amount you owe. That’s because the credit is “nonrefundable,” in tax speak. Put simply, if the credit reduces your overall tax bill below zero, the IRS is not going to cut you a check for the difference. You can, however, “carry forward” any unused portion of your tax credit and use it to reduce your taxes in the following year

Internal Revenue Service. Instructions for Form 5695 (2023). Accessed Feb 14, 2024.
.

The solar tax credit is a powerful tax tool for those who can claim it, because it is a credit rather than a deduction. That means the amount for which you’re eligible can be knocked off of your taxes due. That can mean much larger savings than a deduction, which requires that you itemize and only recoups a portion of your expenses by reducing your taxable income. 

NerdWalletTaxes Logo

Simple tax filing with a $50 flat fee for every scenario

With NerdWallet Taxes powered by Column Tax, registered NerdWallet members pay one fee, regardless of your tax situation. Plus, you'll get free support from tax experts. Sign up for access today.

for a NerdWallet account

illustration

How do you qualify for the federal solar tax credit?

Not every project in these categories will qualify for federal aid, but there are some general guidelines that can help you get a sense of what to expect. 

The project has to be in your U.S. home. The IRS defines this as somewhere you lived in the year for which you’re claiming the credit, and it can include “a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home.” For solar, wind and geothermal projects, the property in question doesn’t have to be your primary residence

You have to own the system. The costs of a leased system on your home aren’t part of the credit program.

You must have placed the project in service in 2017 or later. Projects activated before the energy credit program began won’t help you with your taxes now. 

Not everything is included. Installing a solar energy project can be complicated, and not every cost is covered by the program. For instance, it includes installation, but not work done that supports the system but serves only a structural function. 

What other projects are eligible for the residential clean energy credit?

The residential clean energy credit also covers other types of renewable energy projects undertaken by homeowners. The cost of the labor, assembly or installation and wiring of the following properties also generally count as qualifying expenses.

  • Solar electric.

  • Solar water heaters.

  • Small wind energy.

  • Biomass fuel.

  • Fuel cells.

  • Geothermal heat pumps.

How do you claim the solar tax credit?

To claim the solar credit (residential clean energy credit) when you file a tax return, you’ll have to fill out IRS Form 5695

Internal Revenue Service. 2023 Form 5695.
.

You’ll need some information about your tax situation that you can gather from other documents, including Form 1040. You’ll also have to supply details about the cost of your energy project as well as a certification from the equipment manufacturer that the products qualify for the credit.

🤓Nerdy Tip

Form 5695 is also used to claim tax credits of up to $3,200 for other home improvements, such as new windows and insulation, through the energy efficient home credit.

Does the solar tax credit work with other incentives? 

You can claim the tax credit if you receive other clean energy incentives for the same project, but that additional financial assistance might shrink the overall cost of your system for tax purposes. Because the federal tax credit is calculated as a percentage of that cost, you could wind up with a smaller credit. 

Solar panel incentives by state

State-level solar incentives vary widely, so it’s wise to read up on your state’s rules before making any decisions. If you’re not sure where to start, NC State University’s NC Clean Energy Technology Center offers a nationwide directory of available programs

NC Clean Energy Technology Center. Database of State Incentives for Renewables & Efficiency. Accessed Jan 12, 2024.
.

Generally speaking, getting a state tax break or rebate won’t limit your ability to get solar credits from the IRS. 

Utility-based clean energy incentives

On the other hand, incentives paid out by your utility provider may not help to the same degree (though they could still save you money). 

According to the IRS, the overall cost used to calculate your credit has to take into account any help you got from a public utility, unless you counted that incentive as income for federal tax purposes. 

Get more smart money moves – straight to your inbox
Sign up and we’ll send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money.