30% Federal Solar Tax Credit Extended Through 2032 | Solar.com

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30% Federal Solar Tax Credit Extended Through 2032

In an unexpected yet welcome move, the Inflation Reduction Act of 2022 increased the Residential Clean Energy Credit t0 30% and extends it until the end of 2032.

This is huge news for solar customers, as the tax credit was previously at 26% for 2022 installations and scheduled to step down to 22% in 2023 before going away entirely in 2034. Better yet, Americans that installed solar in 2022 expecting a 26% credit will now be eligible for 30%. That’s an extra $1,000 in tax credit for purchasing a $25,000 solar or battery system.

Disclaimer: This content is for informational purposes only. Please consult with a CPA or Tax Advisor before filing.

What is the Solar Tax Credit?

The Residential Clean Energy Credit, also known as the Solar Investment Tax Credit (ITC) is a 30% tax incentive on your gross solar system cost.

The only requirements are that you:

  1. You own the system by purchasing your solar via cash or a solar loan (lease or PPA financing cannot claim the tax credit)
  2. You have an income tax liability, which is what this incentive reduces

Note, if your 30% tax credit is $6,000 total, and you only have $5,000 in personal income taxes one year, you can roll over the remaining $1,000 to next year’s income taxes.

This incentive has been huge for home and business owners since 2005 as part of the Energy Policy Act. The federal government has already extended the incentive expiration date three times before. The most recent extension in 2020 added a 26% extension until 2022 and “step down” schedule that gradually phases out the credit over a few years.

The Inflation Reduction Act Solar Tax Credit Step Down Schedule

With the Inflation Reduction Act (IRA) now law, the solar tax credit doesn’t begin stepping down until 2033.

Here’s the new Residential Clean Energy Credit step down schedule compared to the old schedule:

federal solar tax credit before and after inflation reduction actHere’s a table of the ITC step down:

Solar Tax Credit
Step Down Schedule
Year Tax Credit
2022-2032 30%
2033 26%
2034 22%

How do I make sure I’m eligible to claim the Solar Tax Credit?

To qualify for the 30% Residential Clean Energy Credit, you’re solar system needs to be installed and deemed operation by a city inspector in any of the tax years 2022-2032. The 30% credit applies retroactively to systems installed in 2022 when the credit was still at 26%.

Even though physically installing a solar system usually does not take more than a single day, many homeowners do not realize that a solar project may take weeks to complete after contract signing. This is due to factors such as permitting, financing approval, utility approval, and so on. Read more about the solar installation process here.

While you don’t have to worry about the tax credit stepping down for another 10 years, there are plenty of reasons to install solar sooner rather than later. First, the sooner you install, the sooner you will see a return on investment. Second, net metering policies are subject to change over time, so it’s best lock net metering while its available.

How big of a difference is a 26% tax credit versus a 30% tax credit?

The Investment Tax Credit is applied to your solar array’s gross system cost, so the amount you receive is dependent on the amount of solar you’re purchasing. The bigger system, bigger credit.

Here’s a quick example of the difference in credits in 2021 (26% credit) and 2022-2032 (30% credit) for a $27,000 9 kW solar array.

Installed and claimed in 2022-2032 taxes at the full 30% level, your credit would be $8,100. Installed and claimed in 2021 taxes at the 26% level, your credit would be $7,020.

That’s a savings difference of $1,080 compared to the previous year.

Tax credit difference in 2019 versus 2020 for 9 kW solar project
Year Gross Solar Cost Credit % Credit Amount Net Solar Cost
2022-2032 $27,000 30% $8,100 $18,900
2021 $27,000 26% $7,020 $19,980

While ~$1,000 may not seem like a huge difference to some, if you’re already decided to go solar and just waiting for the right moment, you should move forward this year to maximize your savings.

How do I claim the tax credit?

To claim your project tax credit when filing taxes, complete IRS Form 5695 – Residential Energy Credits.

IRS Form 5695 Residential Energy Credits

For an in-depth explanation of filing the credit, follow our full step-by-step guide here. Also, check this video that walks you through the process for claiming the federal tax credit.

Final Tips to Homeowners Considering Solar

  1. The Residential Clean Energy Credit is the single largest incentive for going solar and has no maximum
  2. Use Solar.com’s online marketplace to receive competing quotes from top solar providers. The more quotes you receive, the more likely you’ll find the right type and price system your home needs
  3. Try our solar calculator for an instant snapshot of your savings with solar

Thanks to the Inflation Reduction Act, solar customers no longer need to worry about missing out on the 30% tax credit.

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