Thinking about switching to solar energy? You might be eligible to save thousands on your solar panel installation through the federal solar tax credit. Residential and commercial solar systems, as well as battery installations, can qualify for this attractive 30% federal solar tax credit.
If you’re considering installing solar panels on your home or business, you’ll want to learn about the federal Investment Tax Credit (ITC). This incentive greatly reduces the overall cost of solar installations, thereby shortening your payback period and allowing you to reap the benefits of your investment more quickly.
Virtue Solar is honored to be your local expert in Charlottesville, Virginia. We’ve crafted this comprehensive guide to provide you with clear, accurate information about the solar tax credit, including qualification criteria and steps to claim it, so you can maximize your savings on your solar panel installation.
Ok, disclaimer time– this article is for informational purposes only! We are not tax professionals, and no part of this should be considered legal or tax advice. Be sure to consult with a tax professional to make sure you can claim the credit for yourself.
For the most up-to-date information on residential energy credits, visit the IRS website.
What Is the Federal Solar Tax Credit?
The ITC is a federal incentive for residential and commercial solar panel systems. It reduces your federal income tax liability by a percentage of your solar installation costs for the year that your system, including batteries, is installed. The credit is currently set at 30% of your total installation cost, making it the most significant it’s ever been.
History of the ITC
Introduced in 2005, the federal solar tax credit has seen several modifications. Recently, the Inflation Reduction Act of 2022 increased this credit to 30% and extended its availability until 2032. Afterward, it will taper down to 26% in 2033, 22% in 2034, and phase out for residential systems by 2035.
What the Commercial Tax Credit?
The tax credit for commercial solar systems falls under a different tax code. While the base is still 30%, commercial systems can actually get bonus credits that can increase the credit to up to 50%. Check out our page on commercial solar incentives for more information!
Why Act Now?
With potential changes on the horizon in 2025, it’s uncertain how future policies may alter the credit’s percentage or availability. Therefore, 2025 represents an optimal time to take advantage of the current 30% tax credit. Virtue Solar is closely monitoring any legislative changes.
Benefits of the ITC
- Save 30% Off Total Solar Costs: This credit is available for all solar systems installed until 2032.
- No Cap or Income Limits: Unlike some incentives, there’s no cap, and it’s available to anyone with a qualifying solar system.
- Includes Battery Installation: Starting in 2025, standalone battery systems are also eligible.
How Does the Solar Tax Credit Work?
It’s essential to understand that the ITC is a tax credit, not a deduction or refund. It directly reduced your tax liability.
For example, if you install a $20,000 solar system, you earn a credit of $6,000 (30% of $20,000) for that tax year. Should you owe $5,000 in taxes, the credit would cover your debt. Any remainder, in this case, $1,000, can roll over into the subsequent years.

How to Claim the Federal Solar Tax Credit on Residential Systems
Claiming the ITC is typically very easy– just one additional form when filing your tax return.
Follow these steps:
1. Retain all solar installation receipts.
2. Complete IRS Form 5695 (Residential Energy Credits).
3. Include the tax credit amount on line 5 of your IRS Form 1040.
Are You Eligible for the Solar Tax Credit?
Most rooftop solar installations meet the simple eligibility criteria, but it’s good to confirm with your CPA, especially if your project is more complex:
- Date of Installation: The system must be operational by year-end to claim the tax credit. This is the most common question we get, and although we are not tax professionals, most folks interpret this as requiring your system to be “turned on” in order to meet the requirement.
- Location: Must be installed at your primary or secondary home within the United States.
- Ownership: You must own your solar system; lease agreements and power purchase agreements do not qualify, though financed systems do.
- Equipment: Must be new—repurposed equipment does not qualify.
- Tax Liability: You need to be a U.S. taxpayer with income tax liability to benefit from the credit.