Federal Solar Tax Credit (ITC): Ending January 1, 2026
6 min read
Federal Solar Tax Credit (ITC): Ending January 1, 2026
Updated: September 8, 2025
The Federal Solar Tax Credit, also known as the Investment Tax Credit (ITC), has been a game-changer for homeowners looking to invest in solar energy. This program significantly reduces the upfront costs of installing solar photovoltaic (PV) systems, making clean energy more accessible. However, this tax credit is set to expire for residential installations after December 31, 2025. If you’ve been considering switching to solar, now is the time to act.
This guide breaks down everything you need to know about the ITC, including eligibility, covered expenses, and important deadlines. Come take advantage of what 2025 has to offer. Please Contact Us.
You can also fill out a Commercial or Residential Quote.
What is the Federal Solar Tax Credit?
The Federal Solar Tax Credit is a dollar-for-dollar reduction in the federal income tax you owe, based on a percentage of your solar system’s cost. For example, if you owe $5,000 in taxes and claim a $1,500 tax credit, your tax liability decreases to $3,500. Unlike tax deductions, which lower your taxable income, tax credits directly reduce the taxes owed.
The ITC applies specifically to residential solar installations, allowing Arizona homeowners to claim a percentage of the system’s cost on their federal tax return. While this program has been extended in the past, it is officially ending for residential systems on January 1, 2026.
Eligibility Criteria for the Solar Tax Credit
To qualify for the Federal Solar Tax Credit, you must meet the following requirements:
- Installation Deadline:
Your solar PV system must be installed and operational by December 31, 2025.
- Ownership:
You must own the system outright, either through a cash purchase or financing. Leased systems or agreements to purchase power from a third party do not qualify.
- Primary or Secondary Residence:
The system must be installed at a U.S. residence you own, including secondary homes.
- Community Solar Projects:
If you own a share in an off-site community solar project, you can claim the credit if the electricity generated offsets your home’s energy consumption.
What Expenses Qualify for the Solar Tax Credit?
The ITC covers a wide range of costs associated with solar installations, including:
- Solar Panels: Costs for PV cells and panels, even if used for secondary applications like powering an attic fan.
- Labor Costs: Installation, permitting, and inspection fees.
- Energy Storage: Battery systems with a capacity of at least 3 kWh, installed after December 31, 2022.
- Balance-of-System Equipment: Inverters, wiring, and mounting hardware.
- Sales Tax: Any sales tax applied to eligible expenses.
What Doesn’t Qualify?
Not all expenses are eligible for the credit. The following do not qualify under the ITC:
- Leased solar systems
- Electricity purchases from community solar projects
- Pre-owned or previously installed equipment
How Incentives Affect the Tax Credit
The Investment Tax Credit (ITC) provides significant financial incentives for homeowners and businesses investing in solar energy systems. Understanding the eligibility requirements, qualified expenses, and the impact of additional incentives is essential to ensure the full benefits of this program are maximized. This guide outlines key details to help you make informed decisions regarding your solar energy investment.
Utility Rebates
Utility rebates typically reduce the system’s cost before calculating the tax credit. For example:
- Solar system cost: $20,000
- Utility rebate: $1,000
- Tax credit calculation: ($20,000 – $1,000) x 30% = $5,700
State of Arizona Rebates
State-level rebates generally do not reduce the federal tax credit. For example:
- Solar system cost: $20,000
- State rebate: $1,000
- Tax credit calculation: $20,000 x 30% = $6,000
Frequently Asked Questions
Can I claim the credit for a vacation home?
Yes, secondary residences qualify, as long as they are in the U.S.
Do off-grid systems qualify?
Yes, as long as they meet the eligibility requirements and are used for a residence.
What if I finance my solar PV system?
Financed systems qualify as long as you own the system outright after payments are complete.
Can I claim the tax credit for ground-mounted panels?
Yes, ground-mounted systems are eligible.
What happens if my tax liability is less than the credit?
The unused portion of your credit can roll over to the next tax year.
Does roof replacement qualify?
Generally, roof replacements do not qualify unless the roof solely supports the solar system.
How to Claim the Solar Tax Credit
Follow these steps to claim your credit:
- Consult a Tax Professional:
Ensure you meet eligibility requirements and gather all necessary documentation.
- Complete IRS Form 5695:
Include this form with your federal tax return (Form 1040).
- Keep Records:
Retain receipts and other documents related to your solar installation.
Time is Running Out: Act Now with Solar Topps!
The Federal Solar Tax Credit has made renewable energy more accessible for homeowners across the U.S. However, with the expiration date set for January 1, 2026, the window to take advantage of this incentive is closing fast. If you’ve been considering a switch to solar, there’s no better time to start.
Don’t miss the chance to reduce your energy costs and take a step toward a more sustainable future. Reach out to Solar Topps today to get started!
