Disclaimer: This article is intended for informational purposes only. It is not intended as financial or tax advice. Consult a financial professional for individualized guidance on your eligibility for the Residential Clean Energy Tax Credit.
If you’ve installed solar panels in 2025, or are in the process of doing so, the federal solar tax credit can help make the cost of installation more affordable. With energy costs rising, renewable energy solutions are effective at driving down long-term electricity costs. The Residential Clean Energy Tax Credit offers a significant financial incentive for homeowners considering solar panels, offsetting some of the high upfront costs. Unfortunately, with the passage of the One Big Beautiful Bill Act, the tax credit will be eliminated earlier than initially anticipated, on December 31, 2025. This means that if you installed solar panels in 2025 or are planning to before the end of the year, you can still qualify for the 30% tax credit on your installation costs. Let’s explore in greater detail.
Solar tax credit 2025 at a glance
- If you're filing your taxes for the 2025 tax year, the solar panel tax credit covers 30% of eligible costs associated with solar installation.
- The solar tax credit extends to new solar installations on your property after 2017.
- To qualify, installations must be placed in service by December 31, 2025.
- The federal tax credit for solar can reduce what you pay in income taxes.
- Community solar can be a great option if you aren’t ready to take advantage of the ITC and install your own solar system.
What is the Residential Clean Energy Tax Credit?
The Residential Clean Energy Tax Credit is a federal tax credit which enables homeowners to reduce what they owe in federal income taxes by a percentage of their solar installation costs. This credit can apply to several of the costs associated with solar installation, including:
- Solar panel installation
- Solar energy storage systems
- Installation costs associated with the above
How does the solar tax credit work?
When you install a qualifying solar energy system, you can claim 30% of the total cost as a credit against what you owe in federal taxes.
- Direct Savings: The tax credit reduces the amount you owe. For example, a $15,000 solar installation could yield a tax credit up to $4,500, reducing federal tax liability by that amount.
- Roll-over benefits: Tax credits greater than the amount owed in taxes in a given year can roll over to the following tax year.
Who qualifies for the 2025 solar tax credit?
To be eligible for the Residential Clean Energy Tax Credit in 2025, homeowners must meet several key requirements:
System Ownership: In order to qualify for the tax credit, you must own the solar system. If you lease your system through a third-party provider, the owner will receive the credit.
Installation Location: Qualifying systems must be installed at a primary or secondary residence in the United States.
Placed in Service: The system must be placed in service, meaning it is fully installed, inspected, and ready to operate, by December 31, 2025.
Battery Storage Eligibility: Beginning in 2023, standalone battery storage systems with a minimum capacity of 3 kilowatt-hours (kWh) also qualify. This also means if you previously installed solar and now want to add a battery system, those battery costs are now also eligible for the tax credit.
How much can be claimed with the federal tax credit?
While there is no limit on the amount you can claim with the federal solar tax credit, it is currently fixed at 30% and is only applicable to eligible expenses. These include:
- The cost of solar panels
- Battery storage systems 3 kWh in capacity or higher
- Installation costs, including labor, permitting, and inspections
- Electrical system upgrades related to solar installation
What’s changed with the ITC this year?
When the One Big Beautiful Bill Act was passed, it put an end to the tax credit at the end of the year, eliminating it prematurely without any phase out period. The tax credit has a long bipartisan history, having initially been signed into law in 2005. Thanks to the Inflation Reduction Act, the tax credit was due to remain at 30% through 2032, before beginning a gradual phase-out period and reaching total elimination in 2035.
Historically, the tax credit has played a significant role in supporting solar job creation, bolstering domestic manufacturing, lowering the barriers to renewable energy adoption and overall making energy more affordable for Americans. While the termination of the tax credit will likely have adverse impacts on those who want to put solar on their homes/businesses, there are still ways to take control of your electricity costs.
Are solar panels still worth it without the tax credit?
One of the greatest strengths of the tax credit is that it made residential solar more affordable, breaking down one of the barriers to renewable energy adoption. With the 30% tax credit, it took an average of 7 years for the panels to essentially pay for themselves. Without the ITC, this payback period is extended to approximately 10 years. While this can make the upfront cost a bit more daunting, consider that solar panel costs have been dropping while electricity costs across the US continue to climb. When you go solar, you effectively lock in the price of your electricity, shielding you from volatile rate increases. Most solar panels have 25–30-year warranties so over half of your installation’s lifespan will be after the panels have already paid for themselves in electricity cost savings. If you’re able to afford the upfront cost, solar is still a tremendously worthwhile investment, even without the tax credit.
Missed the ITC deadline and no longer planning to install solar panels? Consider community solar!
If you’re not ready to foot the entire cost of installation upfront, rent your home, or don’t have a suitable roof for solar panels, there’s another great cost-saving option available to you—community solar. With no upfront costs and no installation required, community solar is a great way to support clean energy and save on annual electricity costs. Nexamp customers save an average of $275 annually on their electricity costs. Learn more about community solar here.