Federal Solar Tax Credit (Section 25D): Complete Guide for 2026

Homeowners considering investments in clean energy for their residences may be eligible for a significant federal tax incentive. The Residential Clean Energy Credit, often referred to as the federal solar tax credit (Section 25D), currently allows qualifying taxpayers to claim 30% of the cost of eligible new, qualified clean energy property for their home. This guide provides a comprehensive overview of the credit as of 2026, outlining its scope, eligibility, and how to claim it.

What is the Federal Solar Tax Credit (Section 25D)?

The Federal Solar Tax Credit is officially known as the Residential Clean Energy Credit, codified under Section 25D of the U.S. Internal Revenue Code (26 U.S.C. § 25D). This program is designed to encourage homeowners to invest in renewable energy technologies for their primary or secondary residences located within the United States. It functions as a non-refundable tax credit, meaning it can reduce a taxpayer’s federal income tax liability. If the credit amount exceeds the tax owed, the excess credit generally can be carried forward to future tax years, allowing taxpayers to potentially benefit from the full credit over time.

Covered Technologies

As of current IRS guidance, the Residential Clean Energy Credit covers a range of clean energy technologies when installed on a qualifying residence. These include:

• Solar Electric (PV) Property: Systems that generate electricity for the home using solar panels.
• Solar Water Heating Property: Systems that heat water for use in the dwelling. Specific rules typically apply, such as the system needing to be certified by the Solar Rating Certification Corporation or a comparable entity.
• Small Wind Energy Property: Wind turbines that generate electricity for residential use.
• Geothermal Heat Pump Property: Systems that use the earth’s natural heat to heat and cool a home.
• Fuel Cell Property: Systems that use a chemical process to generate electricity. There may be specific wattage requirements for these systems.
• Battery Storage Technology: Systems that store energy for the home. To qualify, battery storage must have a capacity of at least 3 kilowatt-hours (kWh).

It is important to note that this credit is specifically for residential use. Rental properties, for instance, typically do not qualify for Section 25D; instead, commercial clean energy credits (such as Section 48) may apply to such installations.

Who Qualifies for the Residential Clean Energy Credit?

Eligibility for the Residential Clean Energy Credit is generally tied to the type of property where the clean energy system is installed and the taxpayer’s ownership status. Understanding these rules is crucial to determine if you can claim the credit.

Primary and Secondary Residences

To qualify, the clean energy property must be installed at your residence in the United States. This includes both your primary home and a secondary residence, such as a vacation home. The key requirement is that the property must be used as a dwelling by the taxpayer.

Exclusion of Rental Properties

A critical distinction is that rental properties generally do not qualify for the Section 25D Residential Clean Energy Credit. This credit is designed for personal residential use. If you install clean energy property on a property that is primarily used for rental income, it typically falls under different federal tax incentives, such as the Section 48 commercial credit. Taxpayers should consult official IRS guidance or a qualified tax professional to confirm the appropriate credit for their specific property use.

Ownership and Installation

The credit is typically claimed by the homeowner who purchases and installs the eligible system. The costs included in the credit calculation generally encompass the cost of the equipment and the labor for onsite preparation, assembly, or installation, and for piping or wiring to interconnect the qualified energy property to the home.

How Much is the Federal Solar Tax Credit and When Does It Expire?

The Residential Clean Energy Credit offers a substantial incentive for homeowners. Understanding the credit percentage, its non-refundable nature, and its expiration timeline is essential for planning.

Credit Percentage

For qualifying clean energy property placed in service, the credit percentage is 30% of the eligible expenses. There is currently no income limit for claiming this credit, nor is there an expense cap on the amount of qualified expenditures that can be included in the calculation. This means that 30% of the total cost of your eligible system can generally be claimed as a credit.

Non-Refundable with Carry Forward

The Residential Clean Energy Credit is a non-refundable tax credit. This means it can reduce your federal income tax liability to $0, but it will not result in a refund of taxes beyond what you owe. However, a significant benefit of this credit is that if the amount of your credit exceeds your tax liability for the year, the excess credit can be carried forward to future tax years. This carry-forward provision allows taxpayers to potentially utilize the full value of the credit over several years, subject to future tax liabilities.

Expiration and Step-Down Schedule

The 30% credit percentage is available for eligible property placed in service through December 31, 2032. After this date, the credit is scheduled to step down in percentage over subsequent years:

• Through December 31, 2032: The credit remains at 30% of eligible expenses.
• For property placed in service in 2033: The credit percentage will be 26% of eligible expenses.
• For property placed in service in 2034: The credit percentage will be 22% of eligible expenses.
• For property placed in service in 2035 and later: The credit percentage is scheduled to be 0%, meaning the credit will expire unless further legislative action is taken.

Taxpayers considering installing clean energy systems should be aware of these deadlines and the step-down schedule to maximize their potential credit.

How to Claim the Residential Clean Energy Credit

Claiming the Residential Clean Energy Credit involves filing a specific form with your federal income tax return. The process is generally straightforward for qualifying taxpayers.

IRS Form 5695

To claim the credit, taxpayers must complete and attach IRS Form 5695, “Residential Energy Credits,” to their federal income tax return (Form 1040 or 1040-SR). This form is used to calculate the amount of the Residential Clean Energy Credit you are eligible to claim for the tax year.

Documentation and Record-Keeping

While you do not typically submit receipts or invoices with your tax return, it is crucial to maintain thorough records of your eligible expenses. This includes purchase receipts, installation invoices, and any other documentation related to the cost and installation of your clean energy property. These records may be requested by the IRS in the event of an audit. The IRS Form 5695 instructions provide detailed guidance on what costs are considered eligible.

Timing

The credit is claimed for the tax year in which the clean energy property is “placed in service.” This generally means when the property is installed and ready to be used. For example, if a solar electric system is installed and operational in 2026, the credit would be claimed on your 2026 federal income tax return, which is typically filed in early 2027.

Common Mistakes

• Claiming for a Rental Property: The Residential Clean Energy Credit (Section 25D) is specifically for clean energy property installed at your primary or secondary residence in the United States; rental properties generally do not qualify, as Section 48 commercial credits typically apply to such installations.
• Not Meeting Battery Storage Capacity: For battery storage technology to qualify for the credit, it must have a capacity of at least 3 kWh; systems with lower capacity are typically not eligible.
• Attempting to Claim for a Property Outside the U.S.: The credit explicitly requires the clean energy property to be installed at a residence located within the United States, excluding properties abroad.
• Misunderstanding the Credit’s Non-Refundable Nature: While the credit can reduce your tax liability to zero, any excess credit is not refunded as cash but can generally be carried forward to reduce future tax liabilities.
• Overlooking the Credit’s Expiration Timeline: The 30% credit is available through 2032, but it steps down to 26% in 2033 and 22% in 2034, and is scheduled to expire in 2035, so timing of installation is important.
• Failing to Use IRS Form 5695: To properly claim the Residential Clean Energy Credit, taxpayers must complete and attach IRS Form 5695 to their federal income tax return; omitting this form will prevent the credit from being applied.

Frequently Asked Questions

What is the current credit percentage for the Residential Clean Energy Credit?

As of 2026, the credit percentage for qualifying clean energy property is 30% of the eligible expenses. This percentage is scheduled to remain in effect through December 31, 2032, after which it will begin to step down.

Can I claim the Section 25D credit for a vacation home?

Yes, the Residential Clean Energy Credit generally applies to clean energy property installed at your residence in the United States, which includes both your primary home and a secondary residence, such as a vacation home. The key is that it must be a residence you use.

What if my tax credit is larger than the amount of federal tax I owe?

The Residential Clean Energy Credit is a non-refundable credit. If the credit amount exceeds your federal income tax liability for the year, the excess credit can typically be carried forward to reduce your tax liability in future tax years, allowing you to potentially utilize the full value of the credit over time.

Does the credit apply to all types of solar installations?

The credit specifically covers “solar electric (PV)” and “solar water heating” property, among other clean energy technologies like small wind energy, geothermal heat pumps, fuel cells, and battery storage (with a minimum 3 kWh capacity). It is important to ensure your specific solar installation type falls within these defined categories to qualify.

When to Get Professional Help

Most homeowners can claim residential energy credits without professional help by filling out IRS Form 5695. Many people, however, find it helpful to consult a licensed tax professional when one or more of the following applies:

• The project involves multiple credits across several years (Section 25C has annual caps that interact with each other)
• You are claiming the Residential Clean Energy Credit (Section 25D) on a property that mixes primary and rental use
• Your tax liability is below the credit amount and you need to carry forward to future years
• You bought an EV through a dealer transfer (Section 30D point-of-sale option) and want to confirm the paperwork
• You qualify for HEEHRA point-of-sale rebates that interact with federal tax credits
• You operate a home-based business or claim home office deductions in addition to energy credits

For straightforward residential installations of a single technology in a single tax year, the IRS Form 5695 instructions are generally sufficient.

Reviewed by Gov Money Map Editorial Team — Last verified: 2026-05-13

Sources: IRC § 25D; IRS Form 5695 instructions; DOE Office of Energy Efficiency & Renewable Energy

DISCLAIMER: Gov Money Map is not a government agency, tax advisor, financial advisor, or law firm. This page provides general educational information only. Federal and state incentive programs change frequently — verify current rules with the official source (IRS, DOE, your state energy office) before filing or making a purchase decision. Last updated: May 2026.