Incentives & Policy

Investment Tax Credit (ITC)

The Investment Tax Credit (ITC), also known as the federal solar tax credit, is a dollar-for-dollar reduction in your federal income tax liability equal to a percentage of the cost of a qualifying solar energy system. For over a decade it was the single largest financial incentive for U.S. solar. The residential version (Section 25D) was repealed by the One Big Beautiful Bill Act and ended December 31, 2025; the commercial version (Section 48E), which covers leases and PPAs, continues through 2027.

The Inflation Reduction Act of 2022 set the residential ITC at 30% for systems installed from 2022 through 2032. This means a solar system that costs twenty thousand dollars earns a six-thousand-dollar federal tax credit. The credit applies to the total installed cost including panels, inverters, batteries, racking, wiring, labor, and permitting. For 2033, the credit steps down to 26%, and for 2034 it drops to 22%, unless Congress extends it.

The ITC is a tax credit, not a deduction or rebate. A tax credit directly reduces the amount of tax you owe — if you owe eight thousand in federal taxes and have a six-thousand-dollar solar ITC, you pay only two thousand. If your tax liability is less than the credit amount in the year of installation, the unused portion can be carried forward to subsequent tax years.

Under the Inflation Reduction Act, battery storage of at least 3 kWh qualified for the residential ITC even without solar panels — a provision that boosted battery-backup economics through 2025. With Section 25D repealed as of December 31, 2025, homeowner-owned battery storage no longer earns a federal residential credit; only commercially owned systems under Section 48E (leases/PPAs) still do, through 2027.

To claim the ITC, you must own the solar system — leased systems and PPA arrangements do not qualify for the homeowner (the leasing company claims the credit instead). The system must be installed at your primary or secondary residence (for residential credit) and placed in service during the applicable tax year.

Frequently Asked Questions

Can I claim the ITC on a DIY solar installation?

Yes. The ITC applies to the total cost of the system including equipment purchased for self-installation. You cannot claim your own labor as a cost, but all materials — panels, inverters, racking, wiring, batteries — qualify. Keep detailed receipts for all purchases and consult a tax professional for proper filing.

What if I do not owe enough taxes to use the full credit?

The residential ITC can be carried forward to future tax years if your tax liability is less than the credit amount. You can use the remaining credit in subsequent years until it is fully absorbed. There is no expiration on the carryforward for residential credits under current law.