The federal solar Investment Tax Credit (ITC) is the single biggest financial incentive for going solar in the US. In 2026, it's worth 30% of your total system cost — that means a $20,000 system nets you a $6,000 credit directly off your tax bill.
This guide covers everything: how it works, who qualifies, how to claim it, and critical mistakes to avoid.
What Is the Solar ITC?
The ITC is a federal income tax credit, not a rebate or deduction. The difference matters: a tax credit reduces what you owe the IRS dollar-for-dollar. A $6,000 credit means you pay $6,000 less in federal taxes — full stop.
A tax deduction only reduces your taxable income, so its value depends on your tax bracket. Credits are more powerful.
ITC Rates Through 2034
| Year | Credit Rate | Status |
|---|---|---|
| 2022–2032 | 30% | ✅ Active |
| 2033 | 26% | Scheduled |
| 2034 | 22% | Scheduled |
| 2035+ | 0% (residential) | Scheduled to expire |
Who Qualifies?
To claim the ITC, you must meet all of these:
- Own your system — not leased. Leases and PPAs transfer the credit to the installer.
- Own your home — the system must be at your primary or secondary US residence.
- New installation — systems must be new, not used.
- Have federal tax liability — you need to owe federal income taxes to use the credit. No taxes owed = no credit (but it rolls over).
⚠️ Leasing Warning: If you sign a solar lease or PPA, you do NOT get the tax credit. The installer keeps it. Always buy or finance — never lease if you want the ITC.
What Costs Are Covered?
The 30% credit applies to the full installed cost, including:
- Solar panels
- Inverters and racking hardware
- Battery storage (if installed at the same time)
- Labor and installation costs
- Permits and inspection fees
- Wiring and electrical upgrades needed for solar
How to Claim It
You claim the ITC when you file your federal tax return for the year installation is complete. The process is straightforward:
- Complete IRS Form 5695 (Residential Energy Credits)
- Enter the total eligible system cost on Line 1
- Calculate 30% — that's your credit
- Transfer the credit to Schedule 3, which flows to Form 1040
If your credit exceeds your tax liability, the unused portion rolls over to the next tax year. Rollovers can continue through 2034.
Battery Storage and the ITC
As of 2023, standalone battery storage systems (without solar panels) also qualify for the 30% ITC. The battery must have a capacity of at least 3 kWh. This is a huge change — previously batteries only qualified when installed alongside solar.
State Incentives Stack on Top
The federal ITC is just the starting point. Most states offer additional incentives:
| Incentive Type | Typical Value | Example States |
|---|---|---|
| State Tax Credit | 15–25% of system cost | NY, SC, MD, UT |
| State Rebate | $500–$5,000 | CA, NY, CO, CT |
| Property Tax Exemption | Varies | Most states |
| Sales Tax Exemption | 5–10% of equipment cost | FL, TX, AZ, NJ |
| Net Metering | Ongoing bill reduction | Most states |
Common Mistakes
- Leasing instead of buying — you forfeit the entire credit
- Installing in December then claiming before the system activates — the credit applies to the year the system is "placed in service"
- Forgetting battery storage — if you add a battery, include its cost in the ITC calculation
- Not consulting a tax professional — especially if you're self-employed or have complex taxes