How the 30% Federal Solar Tax Credit Actually Works in 2026
The Investment Tax Credit cuts a third off your install cost. Here's exactly who qualifies, what counts, and how to claim it.
What the ITC actually covers
The federal Investment Tax Credit (Section 25D) lets you deduct 30 percent of your total solar install cost from your federal income taxes. The credit applies to systems placed in service between 2022 and 2032. From 2033 it steps down to 26 percent, then 22 percent in 2034.
What counts: solar panels, inverters, racking, wiring, labor, permits, sales tax, and battery storage of 3 kWh or more (paired with solar or standalone since 2023).
What does not count: roof repairs unrelated to solar, tree removal, extended warranties beyond manufacturer defaults, or panels for property you do not own.
Who qualifies
You must own the system. Cash purchase or solar loan both work. Lease and PPA disqualify you because the leasing company owns the panels and claims the credit.
The credit is non-refundable but can carry forward. If your tax liability is 5,000 dollars and your credit is 9,000 dollars, you use 5,000 this year and roll 4,000 to next year. There is no carry-back to prior years.
How to claim
File IRS Form 5695 with your annual return. Line 1 is qualified solar electric property costs. The form calculates 30 percent automatically. Attach receipts but keep them for seven years in case of audit.
If you took out a solar loan, you can still claim 30 percent of the full system cost (not just what you paid this year). The credit is based on cost, not financing.
State and local stacking
State tax credits stack on top. New York gives an additional 25 percent up to 5,000 dollars. Massachusetts has a 1,000 dollar credit. Maryland offers a 1,000 dollar grant. Local utility rebates may reduce the system cost basis for the federal credit, so apply rebates first, then take ITC on the lower number.
Common mistakes
Forgetting to include sales tax in the basis. Claiming the credit when the system was placed in service in a different tax year (the install date matters, not the sign date). Trying to claim ITC on a leased system. Not carrying forward unused credit when your tax bill is too small.