If you have been thinking about installing solar panels, you have probably heard about the federal solar tax credit. It is one of the most common questions homeowners ask across Fresno, Clovis, Sacramento, and the surrounding Central Valley.
Many people want to know: How does the solar tax credit work, and how much can it actually save you?
The good news is that solar tax incentives can significantly reduce the cost of installing solar. When combined with California energy savings, solar can still be one of the smartest financial investments for homeowners.
Here is a simple explanation of how solar tax credits work and how homeowners qualify for them.
Solar Tax Credit Quick Summary
Before diving deeper, here are the basics.
- The federal solar tax credit currently equals 30% of the total system cost
- It applies to homeowners who purchase their solar systems
- It reduces the federal income taxes you owe
- It is claimed using IRS Form 5695
- Any unused portion rolls forward to future tax years
For many homeowners, this credit can reduce the cost of solar by thousands of dollars.
What Is the Solar Tax Credit?
The federal solar tax credit is officially called the Residential Clean Energy Credit, previously known as the Investment Tax Credit (ITC).
This incentive allows homeowners who install a qualifying solar energy system to claim 30% of the total installation cost as a credit against their federal income taxes. A tax credit is different from a rebate or refund. It directly reduces the amount of taxes you owe.
For example: If you owe $8,000 in federal taxes and your solar tax credit is $6,000, your tax bill drops to $2,000.
The credit does not reduce the price you pay the installer. Instead, it lowers the taxes you owe when filing your return.
How Do Solar Credits Work With Real Numbers?
To understand how solar credits work in practice, it helps to look at simple examples.
| Solar System Cost | 30% Tax Credit | Tax Savings |
| $20,000 | $6,000 | $6,000 reduction in taxes |
| $28,000 | $8,400 | $8,400 reduction in taxes |
| $35,000 | $10,500 | $10,500 reduction in taxes |
For many homeowners, the credit covers a significant portion of the installation cost.
Because the Central Valley receives strong sunlight year-round, solar systems in this region often generate excellent long-term savings.
How Do Solar Tax Incentives Work When Filing Taxes?
If you install solar, the process for claiming the tax credit is straightforward.
Step 1: Confirm Your System Qualifies
Your solar system must meet several requirements:
- Installed at a home you own in the United States
- New equipment placed into service during the tax year
- Purchased with cash or a loan
Systems installed under a lease or power purchase agreement (PPA) do not qualify for the residential tax credit. In those cases, the solar company typically claims a commercial incentive instead.
Step 2: Calculate Your Credit
Multiply your total installation cost by 30 percent.
Eligible costs include:
- Solar panels
- Inverters
- Mounting hardware
- Wiring and electrical equipment
- Permitting fees
- Labor and installation costs
Battery storage systems may also qualify if installed with the solar system or added later.
Step 3: File IRS Form 5695
Homeowners claim the credit using IRS Form 5695, which is submitted with their federal tax return.
Most tax software programs guide you through this step automatically. A tax professional can also help calculate the credit.
It is important to keep your installation contract and receipts for your records.
Step 4: Carry Forward Any Unused Credit
One important feature of the solar tax credit is that it can carry forward to future years.
For example: If your credit equals $9,000 but your federal tax liability is $5,000, the remaining $4,000 carries forward to the next tax year.
You can continue applying the remaining credit until the full amount is used.
Is the Solar Tax Credit Refundable?
The federal solar tax credit is nonrefundable.
This means the credit can reduce your tax bill to zero, but it will not generate an additional refund beyond the taxes you owe.
However, unused credits can be rolled forward, allowing homeowners to claim the full benefit over time.
What Incentives Are Still Available to California Homeowners?
Even beyond the federal credit, California homeowners may still benefit from several other solar incentives.
California Property Tax Exclusion
Installing solar typically increases your home’s value. California allows homeowners to exclude the value of their solar system from property tax assessments.
This means your property taxes will not increase because of your solar installation.
This exclusion currently applies to systems installed before January 1, 2027.
SGIP Battery Rebates
California’s Self-Generation Incentive Program (SGIP) offers rebates for homeowners who install battery storage systems.
Rebates are calculated based on battery capacity and may be higher for:
- lower-income households
- homes in wildfire risk zones
Availability and funding levels can change, so homeowners should confirm current rebate levels before installing.
Net Billing Credits
Under California’s current net billing structure, solar systems that generate excess electricity can send that energy back to the grid.
Homeowners receive credits on their utility bill that help offset electricity costs later.
Battery storage can help maximize these savings by allowing homeowners to use more of their own solar power.
Is Solar Still Worth It Without the Federal Tax Credit?
For many homeowners across Fresno, Clovis, and the Central Valley, the answer is yes.
Electricity rates have steadily increased over the past decade, and that trend is expected to continue. Solar allows homeowners to produce their own energy and reduce their dependence on utility companies.
The Central Valley is also one of the sunniest regions in the country. More sun hours translate into stronger solar energy production and higher long-term savings.
When homeowners install a properly designed solar system, they can lock in a portion of their energy costs for 25 years or more.
What to Look for in a Solar Installer
With solar incentives and financing options evolving, choosing the right installer matters more than ever.
Before committing to a solar company, homeowners should ask:
- Does the company use an in-house installation team or subcontractors?
- What workmanship warranties are provided?
- How long has the company operated in your region?
- Will they still be around in 10 or 20 years to honor their guarantees?
A well-designed solar system should produce strong energy output for decades.
Ready to Find Out What Solar Could Save You?
Tax credit or no tax credit, the math on solar in Central California still works in your favor. And the best way to know for sure is with a free custom consultation from a certified expert who knows your local utility rates, your roof, and your energy goals.
Contact us or call us at (559) 251-5592 or request your free consultation online. At Pacific Solar, our team is ready to answer your questions and walk you through exactly what solar would do for your home or business.
FAQs About Solar Tax Credits
Can you claim the solar tax credit if you lease solar panels?
No. Homeowners must own the solar system to qualify for the federal residential tax credit. Systems installed through a lease or power purchase agreement (PPA) do not qualify because the solar company owns the equipment.
Can unused solar tax credits roll over?
Yes. If your tax credit is larger than the amount of federal taxes you owe in a given year, the remaining balance can carry forward to future tax years until the full credit is used.
Does the solar tax credit give you a refund?
The credit is nonrefundable. It can reduce your federal tax liability to zero, but it will not create a refund beyond the taxes you owe.
Does the solar tax credit apply to battery storage?
Yes. Battery storage systems may qualify for the federal credit if they are installed with a solar system or added later and meet IRS requirements.
Do you qualify for the solar tax credit if you finance your system?
Yes. Homeowners who finance their solar system with a loan can still claim the tax credit, as long as they own the system.
What costs are included when calculating the solar tax credit?
Eligible costs typically include:
- solar panels
- inverters
- mounting equipment
- wiring and electrical components
- permitting fees
- labor and installation costs
These costs are added together to determine the total system price used to calculate the credit.
When do you claim the solar tax credit?
Homeowners claim the credit when filing their federal tax return for the year the solar system was installed and placed into service. The credit is claimed using IRS Form 5695.