As of now, the Federal Solar Tax Credit, officially known as the Residential Clean Energy Credit, still offers homeowners a 30% tax credit for qualifying solar panel and battery system installations. It’s one of the most valuable incentives ever for homeowners across the United States who want to make the switch to sustainable energy. 

However, the Big Beautiful Bill Act has been signed into law on July 4, 2025, and has officially eliminated the 30% Federal Solar Tax Credit effective midnight on December 31, 2025.

Time is quickly running out for homeowners wanting to go solar.

This guide provides a detailed overview of what the solar tax credit is, who qualifies, how to claim it, and why it’s critical to act in 2025. Check out more information on additional tax credits available to New York State and New York City residents.

Here's everything you need to know.

What Are the New Changes to the Federal Solar Tax Credit? ‍

Here's the section of the Big Beautiful Bill Act that details the cancellation of the Federal Solar Tax Credit:

"Sec. 112006. Termination of residential clean energy credit.

Current Law: Under current law, taxpayers may claim a credit for residential expenditures for solar electric property, solar water heating property, fuel cell property, small wind energy property, geothermal heat pump property, and battery storage property. The value of the credit is 30 percent of the expenditures through December 31, 2032, 26 percent of expenditures in taxable year 2033, and 22 percent expenditures in taxable year 2034.

Provision: This provision accelerates the expiration to December 31, 2025."‍

Who Is Eligible for the Federal Solar Tax Credit?

The solar tax credit is available to U.S. homeowners who install qualifying clean energy systems on their primary or secondary residence. To be eligible, the homeowner must own the system outright (rather than lease it). Installations must be new, not previously used, and must be operational in the year the credit is claimed. The system must also, of course, be located at a residence in the United States. According to the most recent IRS guidelines for the 2024 tax year, systems that are used partially for business purposes may still qualify, but the credit will be prorated based on the percentage of residential use (similar to how a taxpayer might deduct the portion of their home used exclusively for a home office as a business expense.)

What Costs Are Covered Under the Federal Solar Tax Credit?

The 30% solar tax credit applies to a range of expenses directly associated with the purchase and installation of the system. This includes solar panels, inverters, racking and mounting hardware, battery storage (with a capacity of at least 3 kilowatt-hours), wiring, permitting fees, as well as labor. The credit also covers any applicable sales tax on eligible materials. However, unrelated home improvements, like roof replacements not directly tied to solar installation, are not covered. Detailed guidance on qualifying costs can be found in this guide from the U.S. Department of Energy.

If a homeowner receives a rebate that directly reduces the purchase price of the system, such as a state rebate applied at the time of sale, that amount must be subtracted before calculating the federal credit. 

How to Claim the Residential Clean Energy Credit

Homeowners claim the credit by completing IRS Form 5695 and submitting it with their federal income tax return. The calculated credit from Form 5695 is then entered on Schedule 3 of IRS Form 1040. Check out these instructions for filling out Form 5695 or speak with your accountant. Taxpayers should keep all documentation related to your solar project, including receipts, invoices, equipment specifications, permits, and proof of system activation. 

The good news: If your credit exceeds your total income tax owed for the year, the unused portion carries forward to future tax years—indefinitely! For more info on how to claim your solar tax credits check out this post. 

Why 2025 Is a Critical Year for the Federal Solar Tax Credit

The tax credit is currently set to remain at 30% until December 31, 2025. The Big Beautiful Bill Act has been signed into law on July 4 2025 and it eliminates the residential clean energy credit as of December 31, 2025.

That means solar installers and homeowners need to act fast, with a surge of new installations projected for late 2025—as homeowners look to take advantage of the tax credits before the savings are eliminated.

That’s why 2025 is a key year for homeowners who are thinking about saving with solar. 

Benefits of Acting Before the 2025 Federal Solar Tax Credit Deadline

Homeowners who move forward with solar panel installation in 2025 can still take full advantage of the 30% tax credit. For example, a $30,000 solar project would yield a $9,000 federal tax credit under current rules. (Remember, New York State and NYC residents qualify for additional substantial tax credits. Stack those federal, state, and city tax credits and the cost of a $30,000 system could realistically cost around $5,000 net depending on your situation.)

Even if the federal taxpayer doesn’t owe enough tax to use the entire solar credit in one year, the unused portion will carry over to future years. With Congressional proposals threatening to reduce or eliminate the solar credit after this year, there is a significant incentive to complete solar projects before December 31, 2025. 

With the potential for supply shortages and contractor delays in the second half of 2025, homeowners should ideally plan ahead and schedule installations as early as possible. Whether you’re motivated by cost savings, energy independence, or environmental impact, there has rarely been a better time to go solar. Luckily, it’s easier and quicker than you might think. Here at Mpower Solar in Brooklyn, New York, for example, solar systems can be installed by our team of in-house contractors in under 30 days.

Oh, and to qualify, the system must be fully installed and placed in service—meaning it is operational—by year-end. 

So What About Leasing or Commercial Use of Solar Panels?

It’s important to understand that leased solar systems or systems financed through power purchase agreements (PPAs) don’t qualify for the residential credit. In these cases, the tax benefit goes to the third-party owner of the system—not the homeowner. While this arrangement may reduce upfront costs, it also means forfeiting the federal credit. 

For homeowners looking to maximize their long-term savings, owning the system—whether paid in full or financed—is the best way to access the Residential Clean Energy Credit. Businesses installing solar under the separate Investment Tax Credit (ITC) have different rules, including potential eligibility through 2033 or beyond.

Final Thoughts: Don’t Miss the 2025 Window to Install Solar

The 2025 tax year is your last opportunity to claim the full 30% Residential Clean Energy Credit before cuts take effect. 

For more official guidance, refer to the IRS Clean Energy Credit page and speak with a licensed tax professional. You can also track solar incentive updates on EnergySage and follow the latest policy developments by checking out Reuters’ sustainability reporting and the climate and environmental reporting from AP News.

For New York State and New York City homeowners looking to install solar panels check out Brooklyn-based and family-owned Mpower Solar for a complimentary quote or to chat about your solar options with one of our in-house experts.