Solar Tax Credit And Other Clean Energy Credits: Get Them Before They’re Gone

If you’ve been debating whether it’s time to “go solar” on your home, you better go call a residential solar installation company — and soon. You only have until the end of the year to take advantage of a federal tax credit that allows homeowners to claim up to 30 percent of eligible solar-related costs as a tax break.

If that feels like a tight deadline to get solar panels installed on your home, it probably is. While there had been plans to phase out the residential clean energy credit over the next decade, the massive tax bill that President Donald Trump signed into law on July 4 eliminated it altogether as of the end of this year.

The current tax credit covers up to 30 percent of eligible costs to invest in renewable energy for your home — and it’s been a popular credit among homeowners. In 2023 alone, more than 1.2 million taxpayers claimed the residential clean energy tax credit — for projects that include solar panels, wind energy, and more — receiving an average tax break of nearly $5,100, according to IRS data.

For solar panel installation projects, which accounted for more than 65 percent of residential clean energy credit claims in 2023, the timeframe for getting the system up and running can vary widely state-by-state. It takes about 45 days, on average, from the time a sale is completed until the homeowner receives permission from their utility provider to operate solar panels, according to Benjamin Airth, policy director at Freedom Forever, which does residential solar panel installations in more than 30 states.

“In any state with any contractor, if you were to go solar today, you’d be almost guaranteed to get the tax credit as long as you don’t have any barriers that hold up the project from getting installed,” Airth says. But given the nuances that can delay timing in various jurisdictions, it’s still a good idea to “move on that” plan soon, he says.

While the amount of the tax credit has been reduced during its 20-year lifespan, it’s never been completely eliminated like now — and that might mean a rush to get these projects completed this year.

Solar installers in the greater Chicago area, according to anecdotal reports, are “loaded down” with project requests, says Mark Luscombe, a CPA and principal analyst for Wolters Kluwer Tax & Accounting in Chicago. “Unfortunately, you might be out of luck already.”

But it may still be possible to claim this credit — or the energy efficient home improvement credit that’s also expiring at year-end. Here’s what you need to know.

What is the solar tax credit?

The clean energy credit is often referred to as the solar panel tax credit or the federal solar tax credit, but it actually applies to a broad variety of clean energy projects.

Its official name is the residential clean energy credit, and this tax break allows homeowners to claim up to 30 percent of eligible expenses for the following qualified projects:

• Solar electric panels
• Solar water heaters
• Wind turbines
• Geothermal heat pumps
• Fuel cells
• Battery storage technology

Because this tax credit has no annual or lifetime dollar limit, taxpayers were able to claim it each year they made clean energy improvements to their residence. To be eligible for this credit, you must directly own the equipment — you can’t lease it. The tax credit is nonrefundable, meaning the amount of credit you receive can’t exceed the amount of tax you owe. However, the tax credit does include a “carry forward” provision, meaning any unused credit could reduce your tax bill in future years. (Read more on this IRS page.)

Claiming the solar tax credit in 2025

Tax credits for clean energy residential projects were first introduced in 2005, but 2025 will be the final year that taxpayers can claim this credit. While this tax credit was previously scheduled to be in effect until 2034, with phase outs beginning in 2033, it will no longer be available after Dec. 31, 2025.

What work, exactly, needs to be completed by the end of the year to claim this credit? The language the IRS uses is a little vague, Airth notes, as the agency refers to the projects being placed “in service” during the calendar year. If solar panels have been installed, but a homeowner hasn’t yet received permission from their utility provider to use them, there could be a risk this year that eligible expenses might not be covered, he says.

That said, a separate tax credit for companies that offer leases of solar panel equipment is still in effect through 2027, and those savings are passed along to customers as lower costs in their lease agreement, Airth says. That means customers could save if they decide to go solar — even after the residential clean energy credit expires.

What’s more, as noted above, the residential clean energy tax credit covers eligible expenses beyond solar panel installation, and you may not face such a time crunch with completing other types of projects by year-end. But any additional expenses you incur after this year won’t be eligible for a tax credit, Luscombe says.

Changes to other clean energy tax credits

For taxpayers who have been debating a switch to clean energy for their homes or vehicles — and want to receive a tax break in the process — the incentives to do so will end this year. Two other tax credits were eliminated as a result of the tax megabill:

• Electric vehicle (EV) tax credit: This popular tax break offers a $7,500 credit for taxpayers who purchase a new electric vehicle and a $4,000 credit for purchasing a used EV. But there’s an even tighter deadline to take advantage, as this federal tax credit is being eliminated for any electric vehicle purchased after Sept. 30.
• Energy efficient home improvement credit: This federal tax incentive offers a 30 percent credit to those taxpayers who make qualified energy-efficient improvements to their home — up to $3,200 each year. As with the residential clean energy credit, this program will be eliminated after Dec. 31, 2025.

What is the energy efficient home improvement credit?

As the name implies, the energy efficient home improvement credit offers a tax break to cover up to 30 percent of eligible expenses for a wide variety of projects, including replacing doors, windows, and insulation.

While the credit maxes out at $3,200 per year, there is no lifetime dollar limit, meaning that taxpayers could claim up to the maximum annual credit every year they made eligible improvements.

That said, the credit has much lower dollar limits on specific types of projects. For example, the maximum credit for installing energy efficient windows is $600 a year and exterior doors are limited to $250 each, with a maximum $500-per-year credit for doors. (Read more on this IRS page.)

This credit also expires on Dec. 31, 2025, though these types of projects are generally more feasible than solar panel installation to achieve in that shortened time period.

What does the end of tax breaks mean for the future of clean energy?

Combined, the elimination of the residential clean energy credit and the energy efficient home improvement credit will add up to lost dollars for taxpayers as these were popular tax breaks, Luscombe says.

One of the arguments in favor of eliminating these federal tax breaks was that the savings from switching to clean energy is sufficient such that taxpayers no longer need a tax credit to be incentivized, he adds. “We’ll see if there’s any truth to that.”

From Airth’s perspective, the elimination of these tax breaks has undeniably created concern in the solar industry about what adoption rates will look like going forward. “We’re trying to figure out: Where do we go from here?”

Incentives still available at the state level

That said, there are still some incentives for taxpayers who want to go solar, as state and local governments offer programs to help offset the high upfront costs of installation. Solar incentives by state vary widely and may include rebates, rather than a tax break.

Some states also offer tax breaks for people who make energy-efficient improvements to their home or switch to an electric vehicle. While the elimination of the federal tax credits is significant, policies that benefit these types of residential projects are happening at the state and local level — and Airth says the focus in the solar industry will shift to how to cut red tape to speed up these projects and ensure the industry is immune to the type of policy shifts that just occurred.

Even though these tax credits were eliminated much sooner than the planned phase-out, they could be revived in the future under a different administration, Luscombe says.

Finally, most taxpayers will benefit from the megabill’s extension of the provisions of the Tax Cuts and Jobs Act of 2017 that were set to expire — more so than the elimination of some tax credits, he says. “There are some pluses in there for taxpayers.”