Assumes 3%/yr rate increases, 0.5%/yr panel degradation and no federal tax credit (the 30% §25D credit ended for systems installed after Dec 31, 2025). How we calculate
Data approachEIA rates · NREL sun hours · 2026 federal policy · methodology
You can still use Form 5695 in 2026, but only for solar installed by December 31, 2025: claim 30% of eligible cost on your 2025 return. A $24,600 system gives a $7,380 credit. Systems installed in 2026 get no residential credit because §25D ended. Unused credit from earlier years can still carry forward to later returns.
Last updated October 1, 2026. If you filed a 2025 return on extension, the filing deadline is October 15, 2026.
The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) ended the Residential Clean Energy Credit for expenditures made after December 31, 2025. For this credit, an expenditure is treated as made when installation is completed, so the date your installer finished the job, not the day you signed or paid, decides whether you qualify. The IRS OBBB FAQ is the source for these dates.
This guide covers who can still file, what counts, how to fill in Part I line by line, how carryforwards work now, how to amend, and what to do if your system was finished in 2026. It is general information, not tax advice; confirm your situation with a tax professional.
🏛️ Incentives
Can You Still Claim the Solar Tax Credit on Form 5695 in 2026?
Yes, if your solar installation was completed on or before December 31, 2025. You claim it on the 2025 return you file in 2026. No, if installation was completed in 2026 or later.
Four situations come up most often:
Your situation
What to do
Installation completed in 2025, 2025 return not yet filed (extended to Oct 15, 2026)
Complete Form 5695, Part I, with your 2025 return
Installation completed in 2025 (or earlier), return already filed without the credit
File Form 1040-X with Form 5695, generally within three years of the original filing
Credit from 2025 or earlier was larger than your tax, leaving a carryforward
Report the carryforward on the later year’s Form 5695, following that year’s instructions
Installation completed in 2026
No residential solar credit; see the last section
Net upfront cost of the same 8.2 kW system. A $24,600 system completed in 2025 and claimed on the 2025 return costs $17,220 after the $7,380 credit, while the identical system completed in 2026 stays at $24,600.
Data visualization
Net upfront cost, 2025 vs 2026 completion. The 30% credit is worth $7,380 on a $24,600 system. Source: IRS Form 5695 instructions; Green Energy Calculators model.
Chart summary: The only difference between the two bars is the calendar year the installer finished the job. That single date moves the net cost by $7,380, or 30% of the eligible cost. If your installation date is close to December 31, 2025, the completion record is the document that decides which bar applies to you.
The same law also ended the §25C energy-efficiency credit (Part II of Form 5695) for property placed in service after December 31, 2025. If you added a heat pump, insulation or windows in 2025, you can still claim those on Part II of your 2025 return.
📋 Key Insights
What Qualifies for the Residential Clean Energy Credit on a 2025 Return?
For a 2025 installation, the credit is 30% of the cost of qualifying clean energy property installed at a US home you own and use as a residence. Confirm eligibility before you fill in any lines.
Qualifying property (installations completed by Dec 31, 2025):
Solar electric (PV) panels, inverters, racking, wiring and monitoring hardware
Installation labor, permits, inspection and interconnection fees
Battery storage with a capacity of at least 3 kWh, with or without solar
Solar water heating (if the home uses it for water heating), geothermal heat pumps and small wind
Not qualifying:
Ordinary roof replacement or repairs, tree removal, extended warranties and financing costs (solar roofing that itself generates power is different; ask your preparer)
A home you use only as a rental
Leased and PPA systems, because the company owns the equipment
Second homes. A US second home you own and use as a residence generally qualifies for solar. A home used only as a rental does not; rental and business solar falls under business rules (such as §48E and depreciation) with different requirements, so confirm mixed-use cases with a tax professional.
Cost basis rules. Subtract utility rebates that reduced what you paid. If a utility paid a $1,000 rebate on a $25,600 system, your basis is $24,600. State income-tax credits generally do not reduce the federal basis. Ask your installer for an itemized invoice that separates solar equipment and labor from any roof or electrical work.
📋 Key Insights
How Do You Complete Form 5695, Part I, Line by Line?
Enter your eligible costs, multiply by 30%, add any prior carryforward, limit the result to your tax liability, and move the allowed credit to Schedule 3. The line numbers below follow recent versions of Part I; always check them against the 2025 Form 5695 instructions on IRS.gov. For a full cost breakdown by state and system size, see our guide to How Much Do Solar Panels Cost in 2026?.
Worked example (installation completed October 2025)Inputs: 8.2 kW system, $24,600 eligible cost after rebates, no battery, 2025 federal tax liability $5,000, no prior carryforward.
Line
What it asks
Example entry
1
Qualified solar electric property costs
$24,600
2-4
Solar water heating, small wind, geothermal costs
$0
5a-5b
Battery storage (3 kWh+) question and costs
$0
6a
Add lines 1 through 5b
$24,600
6b
Line 6a × 30%
$7,380
7a-11
Fuel cell property (rarely used)
$0
12
Carryforward from the prior year’s Form 5695, line 16
$0
13
Add lines 6b, 11 and 12
$7,380
14
Limit based on tax liability (worksheet in the instructions)
$5,000
15
Smaller of line 13 or line 14: your credit this year
$5,000
16
Carryforward: line 13 minus line 15
$2,380
Transfer line 15 to Schedule 3 (Form 1040), where the residential clean energy credit flows to your Form 1040. Tax software handles the transfer, but check that it asked whether you received a utility rebate. It cannot detect that from your invoice.
📋 Key Insights
Which Form 5695 Mistakes Trigger IRS Scrutiny?
The most serious 2026 mistake is claiming a system that was completed in 2026. After that, the usual errors are inflated cost basis and missed carryforwards.
Claiming a 2026 completion. If the installer finished in January 2026, there is no §25D credit, even if you signed and paid in 2025. Keep the completion or inspection record that shows the date.
Non-qualifying costs on line 1. A new roof, tree trimming, a smart-home package or an extended warranty bundled into the quote does not belong on line 1. Ask for a revised itemized invoice if yours is a lump sum.
Ignoring rebates. A direct utility rebate lowers your basis. A $2,000 rebate on a $26,600 system means line 1 is $24,600, not $26,600.
Undersized batteries. A battery below 3 kWh does not qualify, whatever its install date.
Missing the carryforward. If your prior return showed an amount on line 16, it belongs on line 12 of the next year’s form. Forgetting it gives up a credit you already earned.
🏛️ Incentives
How Do Carryforwards Work After the Credit Ended?
Credit you earned on 2025 or earlier expenditures but could not use still carries forward to later tax years, even though no new credit can be earned after 2025. You keep applying it until it is used up, limited each year by your tax liability. Confirm the reporting details in the IRS instructions for the year you file, since the form layout may change now that the credit has ended.
Using the example above: a $7,380 credit against $5,000 of 2025 tax leaves $2,380. If your 2026 tax liability is $4,000, you can use the full $2,380 on your 2026 return.
Data visualization
$7,380 credit split. $5,000 offsets 2025 tax and $2,380 carries forward. Source: IRS Form 5695, lines 13 to 16; worked example.
Chart summary: About 68% of the credit ($5,000 of $7,380) is used on the 2025 return because the credit is nonrefundable. The remaining $2,380 is not lost; it becomes the line 12 starting balance on the next year’s form.
Carryforwards take longer to use when tax liability is low, such as in retirement, in a year with large deductions, or with variable self-employment income. If you have a large balance, map expected tax liability for the next few years with a tax professional, and keep the paperwork until the balance is gone.
📋 Key Insights
How Do You Amend a Return or Keep Records for the Credit?
If you finished a qualifying installation in 2025 or earlier and never claimed it, file Form 1040-X with a completed Form 5695, generally within three years of the original filing date.
Keep these records for as long as you are using the credit or a carryforward, plus the normal audit window (generally three years after filing, longer in some cases):
The installer’s final itemized invoice showing address, equipment models and total cost
Proof of payment and any utility rebate letters
Permit, final inspection or utility permission-to-operate documents showing when installation was completed
Copies of every Form 5695 you filed, including the line 16 carryforward
The completion date matters most for systems finished in late December 2025 or early January 2026. If your paperwork is unclear, ask the installer for a written statement of the installation-completion date.
💰 System Cost
What If Your Solar Was Installed in 2026?
There is no residential federal solar credit for a system completed in 2026, so there is nothing to claim on Form 5695 for it. Plan on the full installed price and evaluate the purchase on bill savings and state incentives.
Illustrative example. The assumptions are a $150 monthly bill, 16.3¢/kWh, 4.5 peak sun hours, a 75% bill offset and an 8.2 kW system at $3.00/W, or $24,600. Year-one savings are about $1,350 (75% of a $1,800 annual bill), so simple payback is about 18.2 years ($24,600 ÷ $1,350). With the 30% credit ($17,220 net cost) it would have been about 12.8 years. Your numbers will differ with your rates, roof and quotes; the solar payback calculator runs yours.
Data visualization
Cumulative net savings over 25 years. Without the credit, payback is about 18.2 years on $24,600 at $1,350 a year; with it, about 12.8 years. Assumes 0% rate escalation. Source: Green Energy Calculators model; EIA rate assumption.
Chart summary: Without the federal credit, this example system breaks even in year 19 and reaches about $9,150 of cumulative net savings by year 25. With the credit it broke even around year 13 and reached about $16,530. The gap between the lines is the $7,380 credit. The model holds savings flat, so it ignores rate increases, panel degradation, maintenance, financing costs and inverter replacement; treat it as a comparison of the credit’s effect, not a forecast. The credit line also assumes enough tax liability to use the full amount.
What can still help (verify current terms before you buy):
State credits, such as New York (25% up to $5,000), Hawaii (35% up to $5,000), Massachusetts (15% up to $1,000), Arizona (25% up to $1,000) and South Carolina (25%, with annual limits). These are claimed on state returns, not Form 5695.
Net metering, production payments and utility rebates, which vary by state. Check your state page and DSIRE.
Leases and PPAs, where the company may still use the business §48E credit. Under the 2025 law, new projects generally had to begin construction by July 4, 2026, or be placed in service by December 31, 2027. Any benefit to you shows up only in the price, so compare quotes.
Businesses, farms and nonprofits, which may still use §48E (nonprofits through elective pay) and, for businesses, 5-year MACRS depreciation, subject to the same timing rules.
Sources: IRS OBBB FAQ; IRS Form 5695 and instructions; EIA residential electricity prices; NREL PVWatts; DSIRE. Illustrative figures use the stated assumptions; see our methodology.
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Only for systems whose installation was completed by December 31, 2025. You claim 30% of eligible cost on your 2025 federal return, filed in 2026. The One Big Beautiful Bill Act (Public Law 119-21) ended the §25D credit for expenditures after 2025, so a system completed in 2026 earns no new Form 5695 credit. Unused credit from earlier years can still carry forward.
The 2025 return was due April 15, 2026, or October 15, 2026 if you filed an extension. If you already filed without the credit, you can generally file Form 1040-X within three years of the original filing date, attaching a completed Form 5695. Keep the invoice and records showing installation was finished in 2025.
The credit is nonrefundable, so you use only as much as your tax liability allows and carry the rest forward. For example, a $7,380 credit against $5,000 of tax leaves $2,380 on line 16 for the next year. Report it using that year's Form 5695 instructions, and keep your prior-year forms.
Yes. For a system completed in 2025, the credit is based on the eligible installed cost, not how you paid, so a solar loan, HELOC or cash purchase all count the full cost. Loan interest is not part of the credit basis. Leased and PPA systems do not qualify for the homeowner because the company owns the equipment.
No. Batteries of 3 kWh or more qualified under §25D only if installation was completed by December 31, 2025. A homeowner-owned battery installed in 2026 gets no federal residential credit, with or without solar. Check state and utility battery programs instead, and confirm current availability before you buy.
$150/month electric bill by state
System size and payback vary by electricity rate and sun hours — see your state.
18.19¢/kWh — US average residential price. Source: EIA Electric Power Monthly, Table 5.6.B (year-to-date through July 2026), residential average retail price (July 2026) (EIA)
Solar production
4.5 peak sun hours/day × 0.82 system derate. Approximate state-average daily solar resource (peak sun hours) based on NREL solar resource data (NSRDB); not location-specific — use NREL PVWatts for an address-level estimate. (NREL PVWatts)
Installed price
$3.00 per watt before incentives. Blended 2026 US residential installed price used by this site; EnergySage marketplace reported about $2.60/W (mid-2026); full-market medians are higher.
Federal tax credit
$0 for homeowner-owned systems installed in 2026 — the 30% §25D credit ended Dec 31, 2025 (IRS)
Net metering
National blend — solar assumed to offset 75% of the bill (87% in full-retail net-metering states, 55–70% elsewhere).
Estimates only — not tax, legal or financial advice. Get at least three installer quotes and confirm incentives with your utility and a tax professional.