What this line means
The cost of solar electric (photovoltaic) panels and related equipment installed on your home. This includes the panels themselves, inverters, wiring, mounting hardware, and installation labor. The solar system must generate electricity for your home. The home must be in the United States and can be your primary residence or a second home — not rental property. There is no dollar cap on this credit. 1
The credit rate is 30% through 2032 under the Inflation Reduction Act. It drops to 26% in 2033 and 22% in 2034. 2
Does this apply to you?
- You installed a new solar electric system on your home during the tax year
- You paid for solar panels, inverters, wiring, mounting hardware, or installation labor
- Your home is in the United States and is your primary or secondary residence
- You own the solar system — leased panels do not qualify
- The system was placed in service (generating electricity) during the tax year
Easy to overlook
Installation labor and permit fees count toward the credit The credit covers more than just the panels. All costs directly related to the installation — electrician labor, permit fees, inspection costs, and sales tax on equipment — are qualified expenses. Homeowners who only enter the panel purchase price leave money on the table. 1 IRS Form 5695 instructions — Line 1
Battery storage added to an existing solar system qualifies separately If you already have solar panels and add a battery storage system (capacity of at least 3 kilowatt-hours), the battery qualifies for its own credit on line 4b. You do not need to install new panels to claim credit on the battery. 2 IRS Notice 2013-70 — Residential solar energy property
Watch out for this
Leased solar panels do not qualify. If a solar company owns the panels on your roof and you pay a monthly lease or power purchase agreement, the company claims the credit — not you. Only systems you own and pay for outright (including through a loan) qualify for the credit on your return.
Also watch the “placed in service” date. The system must be generating electricity during the tax year you claim the credit. If panels are installed in December but not connected to the grid until January, the credit belongs on the following year’s return. 1
Footnotes
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IRS Form 5695 Instructions, Residential Energy Credits. https://www.irs.gov/pub/irs-pdf/i5695.pdf ↩ ↩2 ↩3
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Inflation Reduction Act Section 13302, Residential Clean Energy Credit. https://www.irs.gov/credits-deductions/residential-clean-energy-credit ↩ ↩2