Federal

How to Claim the 25D Residential Clean Energy Credit (2026)

To claim the federal 25D Residential Clean Energy Credit, file IRS Form 5695 Part I with your tax return for the year the system was placed in service. The credit is 30% of total qualifying cost — including equipment, labor, permitting, and interconnection — with no dollar cap. Standalone batteries of 3 kWh or larger have qualified since tax year 2023 (no solar prerequisite). The credit is non-refundable but unused amounts carry forward to future tax years. State and utility rebates reduce the federal basis but stacking still wins almost universally. The 30% rate holds through 2032, then steps down to 26% in 2033 and 22% in 2034.

Step 1: Confirm system ownership

You must own the equipment outright (cash or solar loan). Leases, PPAs, and community solar shares do not qualify under 25D — the leasing company claims commercial Section 48 ITC instead.

Step 2: Document total project cost

Equipment cost (panels, inverters, batteries), installation labor, permitting fees, interconnection fees, and any structural roof work directly required for solar mounting are all includable in the credit basis.

Step 3: Subtract any state or utility rebate

Rebates received from utilities or state programs reduce the federal basis. SREC payments do NOT reduce basis (they are revenue, not cost offset). Performance-based incentives that flow over time are typically not basis-reducing — confirm with CPA.

Step 4: Calculate 30% of net cost

Net cost (total cost minus state/utility rebates) × 30% = federal credit. No cap.

Step 5: File Form 5695 Part I

Form 5695 Part I calculates the 25D credit. The form rolls the result to Schedule 3 line 5a, then to Form 1040.

Step 6: Carry forward unused credit

If the 25D credit exceeds your tax liability, the excess carries to next tax year automatically — Form 5695 line 16. There is no time limit on carryforward.

Step 7: Update home cost basis at sale

The 25D credit reduces the home cost basis dollar-for-dollar at sale. Your CPA will need the credit amount when you sell.

Frequently asked questions

Can I claim 25D for a solar lease? +

No. The homeowner must own the equipment. Leases and PPAs disqualify the homeowner — the leasing company claims commercial credit.

Does 25D apply to second/vacation homes? +

Yes — unlike 25C which is principal residence only, 25D allows secondary homes. Pure rentals do not qualify (commercial Section 48 instead).

Does the credit apply to roof work? +

Generally no. Standard re-roofing is not credit-eligible. Structural roof reinforcement directly required for solar mounting may be includable in the basis.

Income limits? +

No income cap on 25D.

Are batteries paired with solar treated separately? +

No — they go on the same Form 5695 Part I as solar. The credit is 30% of total cost including batteries.

Can I claim 25D and 25C in the same year? +

Yes. They are separate credits with separate caps. 25D Part I (uncapped). 25C Part II (capped at $3,200).