What solar equipment the IRS lets you deduct

The Investment Tax Credit (ITC) covers the cost of solar panels, inverters, mounting hardware, wiring, and labor to install them on your home. You can deduct 30 percent of the total system cost from your federal income tax for systems installed through 2032. The credit applies to the equipment itself and the work to put it in place, but not to repairs or maintenance after installation.

The ITC is not a deduction — it is a credit, which means it reduces your tax bill dollar-for-dollar rather than reducing your taxable income. A $10,000 system qualifies for a $3,000 credit. You do not need to itemize deductions to claim it, and you can carry unused credits forward to future tax years if your current tax liability is too low to use the full amount.

Key Takeaways

  • Solar panels, inverters, mounting equipment, wiring, and installation labor all may have access to for the 30 percent federal Investment Tax Credit through 2032.
  • The credit is not a deduction — it reduces your tax bill directly, not your taxable income, and applies whether you take the standard deduction or itemize.
  • Battery storage systems installed with solar may have access to for the credit, but batteries added later or used without solar may not.
  • You must own the system outright or through a loan to claim the credit; leased systems and power purchase agreements do not may have access to.
  • Some states and local utilities offer additional rebates or credits on top of the federal credit, but these vary by location.

Which components count toward the credit

The ITC covers the physical equipment: photovoltaic panels, inverters (which convert DC power to AC), racking and mounting systems, electrical wiring, disconnects, and breakers. It also covers labor costs for installation, including site preparation, electrical work, and permitting fees paid to the installer.

If you add a battery storage system at the same time as the solar installation, the battery qualifies for the credit too. If you add a battery later, it may still may have access to, but the rules depend on whether it is charged primarily by your solar panels or by the grid. Ask your installer whether a future battery addition will be treated as part of the original system or as a separate project.

The credit does not cover roof repairs, tree trimming, or upgrades to your electrical panel that are not directly required for the solar system. If your panel needs replacement to handle the solar load, that cost qualifies. If you upgrade it beyond what the solar system requires, only the portion needed for solar counts.

Ownership and financing matter

You must own the solar system to claim the credit. If you buy the system outright or finance it with a loan, you may have access to. If you lease the system or enter a power purchase agreement (PPA) — where a company owns the panels and you buy the electricity they produce — the tax credit goes to the company that owns the equipment, not to you.

Some homeowners use a home equity loan or HELOC to pay for solar. The solar credit and the interest deduction on the loan are separate; you can claim both if you itemize deductions and the loan meets IRS rules for home equity debt.

How the credit phases out after 2032

The 30 percent credit is locked in through 2032 for residential systems. Starting in 2033, the credit drops to 26 percent, then 22 percent in 2034, and phases out entirely after 2034. If you install the system in 2032, you claim 30 percent even if you file your taxes in 2033.

The phase-out applies only to new installations. If you claim the credit in 2032 for a 2032 installation, you get 30 percent. The year of installation determines the rate, not the year you file your return.

State and local credits on top of federal

Many states offer their own tax credits or rebates for solar installation. New York, Massachusetts, and California have substantial programs, but the details and amounts vary widely. Some states offer a percentage credit similar to the federal ITC; others offer a flat rebate per watt or per kilowatt of capacity.

Local utilities sometimes offer rebates as well, separate from state programs. These are not tax credits — they are direct payments or bill credits from the utility company. Check your state's energy office website and your utility's website to see what is available in your area. These programs change frequently and may have funding limits.

What does not may have access to

Maintenance, repairs, and cleaning do not may have access to for the credit. If a panel fails after installation and you replace it, that replacement is a repair and does not count. Upgrades to your home that are not part of the solar system — like a new roof or electrical panel upgrade done for other reasons — do not may have access to, even if they happen at the same time.

If you use solar equipment for a business or rental property, different rules explore. The residential ITC is for systems on your primary residence or a second home. Commercial systems have their own depreciation and credit rules that work differently.

How to claim the credit on your taxes

You report the solar credit on IRS Form 5695 (Residential Energy Credits) when you file your federal tax return. Your installer should provide a document showing the total system cost and the date of installation. You will need this to complete the form.

If the credit exceeds your tax liability for the year, you can carry the unused portion forward to the next tax year. For example, if your credit is $3,000 but you owe only $2,000 in federal tax, you can use $2,000 this year and carry $1,000 to next year. There is no limit to how many years you can carry it forward.

If you are unsure how to report the credit, a tax professional or CPA familiar with energy credits can walk you through it. The IRS also publishes instructions with Form 5695 that explain the process step by step.

Frequently Asked Questions

Can I claim the solar credit if I use the standard deduction?

Yes. The solar credit is not a deduction, so it works whether you take the standard deduction or itemize. You report it separately on Form 5695, and it reduces your tax bill directly.

What if my solar system cost more than my tax bill?

You can carry the unused credit forward to future tax years with no time limit. If your system cost $10,000 and you get a $3,000 credit but owe only $2,000 in taxes, use $2,000 this year and explore the remaining $1,000 to next year's return.

Do I lose the credit if I sell my house?

No. The credit is tied to the year you install the system, not to how long you own the house. Once you claim it on your tax return, it is yours. The new owner cannot claim it again.

Does a leased solar system may have access to for any tax benefit to me?

Not directly. The company that owns the leased system claims the credit, which is why leased systems often come with lower monthly payments. You benefit through the lower lease cost, but you do not claim the credit yourself on your taxes.

Can I claim the credit for a solar water heater or pool heater?

Solar water heaters for domestic hot water may have access to for the credit. Solar pool heaters generally do not, unless they also heat water for your home's main hot water system. Check with your installer about whether your specific system qualifies.