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How To Apply for the Solar Tax Credit

Written by Faith Foushee/

Edited by Hannah Hillson

Last updated 08/07/2023

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Key Points

  • The federal Residential Clean Energy Credit can reduce the total cost of solar by 30% when you purchase your system.
  • You must fill out IRS form 5695 to apply and claim the credit on your income taxes.
  • The credit appears on your next filed tax return and can be carried over for five years.

Frequently asked questions

  • Yes and no. You can only claim the credit if you live in the rental property for part of the year and rent out while you’re away. The credit is reduced to reflect the amount of time you spend living at the property. For example, if you live in a vacation home for six months out of the year, you can claim 50% of the credit. On a $20,000 solar panel system, the full 30% credit is $6,000. You can claim 50% for a $3,000 partial credit. 

  • Yes. Solar loans and cash purchases are eligible for the solar tax credit because you own the solar system. PPAs and solar leases are not eligible. 

  • Yes. The solar credit can be applied to the purchase of energy-saving improvements on your home, houseboat, mobile home, condominium, or apartment. 

  • Yes. If your tax liability is less than the credit, the remaining credit can be used over the next five years. 

  • No. The solar tax credit is nonrefundable, meaning you will not receive a refund of the credited amount. For example, if you owe $1,500 in taxes and your total credit is $2,000, you are only credited for the $1,500. The remaining $500 from the solar tax credit can be used the following year to pay for tax liabilities. Consult a tax professional on your specific situation. 

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