Solar Tax Credits & Incentives
The federal Investment Tax Credit (ITC) lets you deduct 30% of your solar installation cost from your federal taxes. Combined with state and local programs, incentives can significantly reduce your out-of-pocket cost.
“The 30% federal tax credit is the single biggest incentive in solar history. But it won't last forever, and I want every homeowner to understand exactly how to claim it before it steps down.”
— Peter Galvez, The Sun Broker
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The Federal Investment Tax Credit (ITC) allows you to deduct 30% of the total cost of your solar energy system from your federal income taxes. This includes panels, inverters, batteries, wiring, installation labor, and permitting fees. The 30% rate is available through 2032, then steps down to 26% in 2033 and 22% in 2034 under current law.
The ITC is a dollar-for-dollar tax credit, not a deduction. If your system costs $25,000, you receive a $7,500 credit that directly reduces the taxes you owe. If your tax liability in the installation year is less than the credit amount, you can roll the remaining credit forward to the following tax year.
California no longer offers a separate state solar tax credit, but several valuable programs remain. The Self-Generation Incentive Program (SGIP) provides rebates for battery storage systems, and some municipal utilities offer their own incentive programs. Property tax exclusions under AB 1451 mean your solar installation won't increase your property tax assessment.
To claim the ITC, you must own the solar system — leased systems and power purchase agreements (PPAs) do not qualify for the homeowner tax credit. The installer will provide IRS Form 5695, which you file with your federal tax return. Always consult a qualified tax professional for your specific situation.
Additional incentives may be available depending on your location and utility. Some cities and counties offer expedited permitting or fee waivers. The USDA REAP program covers rural properties, and HUD offers FHA PowerSaver loans for energy improvements. Check the DSIRE database for the most current programs in your area.
Myth Busters
Myth: The solar tax credit is a rebate check from the government. Reality: It's a credit against taxes you owe. You need sufficient tax liability to use it.
Myth: You can only claim the credit in the year you install. Reality: If your tax liability is lower than the credit, unused portions can be carried forward.
Myth: The 30% credit applies to leased systems. Reality: Only system owners can claim the ITC. With a lease, the leasing company claims it.