What Homeowners Need to Know About the 30% Federal Solar Tax Credit in 2025
As a homeowner considering solar energy, 2025 may be your last chance to capitalize on the 30% federal solar tax credit—an incentive that can significantly reduce your solar panel installation costs. Whether you’re adding solar for the first time or upgrading your existing system, now is the time to act. This tax credit offers significant savings for homeowners who invest in solar panel systems, but it will likely go away by the end of 2025. However, that still leaves you with the rest of the year to take advantage of this tax credit. Here’s what you need to know about the 30% federal solar tax credit in 2025.
What Is the Federal Solar Tax Credit?
The federal solar tax credit, also known as the Residential Clean Energy Credit, is available to homeowners who purchase energy and other efficient appliances and products for their homes. Eligible purchases include solar panel systems for electricity generation and home battery storage systems with a capacity of at least 3 kilowatt-hours (kWh). In 2025, this tax credit is available at 30% of the cost of the system. Purchasing solar panels for your home is a major investment, so this credit can go a long way in reducing the overall price of your solar panels and batteries.
How Does the Federal Solar Tax Credit Work?
The federal solar tax credit allows you to claim a credit on your annual taxes. The year after you have your solar panel system installed and online, you can use Form 5695 on your taxes to claim your credit. You’ll receive the 30% tax credit as part of your tax return. Additionally, if the tax credit exceeds the amount you can receive in your return for that year, the remainder of the tax credit can be carried forward to future years as well.
To qualify for the credit:
• Your system must be installed and operational in 2025.
• You must own (not lease) the system.
• You must owe federal income tax to benefit from the credit.
Why Is the Tax Credit Going Away?
The federal Solar Tax credit can vary each year, as it is incorporated into the federal spending budget. In previous years, the tax credit has fluctuated between 26% and 30%. Currently, the federal budget is pending legislation, leaving its future in limbo.
As of May 2025, two budget proposals are on the table:
• The House proposal eliminates the solar tax credit entirely starting in 2026.
• The Senate proposal phases it out gradually: 18% in 2026, 6% in 2027, and 0% by 2028.
While we won’t know exactly what will happen with the solar tax credit until a budget bill is fully passed and approved, it’s very likely that it will be going away in 2026 or significantly reduced.
Do I Still Have Time to Take Advantage of the Solar Tax Credit?
While the phase out of the federal solar tax credit is not good news to homeowners looking to invest in a solar panel system, there is a silver lining. The 30% federal solar tax credit remains in effect for the rest of 2025, regardless of future budget bills. This means you still have the rest of the year to invest in solar and take full advantage of the 30% federal solar tax credit in 2025. It also means you need to take action as soon as possible so that you can have your system fully installed and producing energy for your home before the end of the year.
Get Started With Pacific Energy
For homeowners throughout the entire Island of Maui, the company to turn to for solar panel system installation is Pacific Energy. Don’t miss this limited-time opportunity to maximize your energy savings and reduce your carbon footprint. Contact Pacific Energy today to schedule a free consultation and lock in your eligibility for the 30% federal solar tax credit before it’s too late.