Several incentives make solar adoption less expensive, encouraging people to go green. The federal solar tax credit is one of the most popular, as it is available throughout the country. But with laws changing every year and a new president in office, you may wonder how legislation will impact the credit. Specifically, how have things changed since last year, 2024?

What is the Solar Tax Credit?

The solar tax credit allows you to claim a credit equal to 30% of the value of your solar installation on your federal taxes, reducing your tax bill.

For example, if you purchase a $10,000 system, you will be eligible for a $3,000 tax credit. If you owe $5,000 on your taxes, the amount will be reduced to $2000. If your bill exceeds $5000, your credit will continue rolling over until the program expires.

Here are some things to know about how the credit works:

• You Must Claim for the Year You Purchased Your System: You will only be eligible for the credit for the tax year when you purchased your system.  

• It Rolls Over: However, if the credit exceeds your tax bill, it will roll over into the following year.

• You Must Own Your Panels: You will only be eligible for the tax credit if you own your panels. People who lease or sign a power purchase agreement (PPA) with their providers are not eligible.

• What's Covered: Any part of your system can contribute to the tax credit, including the inverter, battery, labor costs, inspection costs, permitting, and sales tax. Extra services, like roofing and tree removal, are not covered.

• No Maxes: There is no maximum to how much you can claim.

• The System Must Be Installed on Your U.S. Residence: Homes, houseboats, mobile homes, condominiums, and manufactured homes apply.

What's Different About the Credit in 2025?

The credit has been modified since 2024, but the timeline may be even more concerning.  Here are some significant timeline adjustments you should be aware of.

• Trump Freezes the Inflation Reduction Act: When Trump came into office, he froze the Inflation Reduction Act. This legislature rolled out billions of dollars in federal funding for clean energy. It was instrumental in raising the tax credit from 26% in 2020-2021 to 30% in 2022. However, the federal tax credit is still in effect.

• The Credit Will Reduce and Fade Out: Although the federal tax credit is alive and well, it comes with stipulations to incentivize people to go solar sooner rather than later. Specifically, it mandates that the credit will reduce to 26% in 2033 and 22% in 2034 before phasing out entirely.

• Other changes to the credit include the following:

• Technology Neutral Tax Credits: Tax credits are now technology-neutral and can be applied to any emission reduction project beyond solar and wind.

• Updated Eligibility Criteria: The eligibility criteria for the credits have been updated to encompass more specific products. For example, heat pumps must be recognized as ENERGY STAR Most Efficient to qualify.

• Changes in Reporting: Solar taxpayers will receive a PIN from the manufacturer, which they must use to claim the credit at tax time.

Which is the Best Year to Go Solar: 2024 or 2025?

There are various variables to consider in determining whether 2024 or 2025 is/was the best year to go solar. Here's some food for thought:

• Low Prices: In 2025, the price of solar equipment and installation will hit an all-time low of $2.56 per watt on average, dropping from the 2024 average cost of $3.25/w. Although prices are low, they may increase, meaning now may be the best time to go solar.

• Electricity Prices: Although solar prices have decreased, electricity prices are rising.   The Bureau of Labor Statistics revealed a 3.6% increase over the last 12 months, outpacing inflation, meaning people can save even more when going solar. The sooner they start, the more they will save.

• Less Net Metering: Many states are shifting away from net metering, with some utility companies eliminating their programs and others still offering them at lower rates. Although these programs scaled in 2024, cost savings were further reduced in 2025.

• Other Incentives: Although the federal credit is in place, many states are cutting down on solar incentives in 2025. However, the U.S. Department of Energy loan and grant programs are seeing an uptick in funding for commercial solar projects.

Why You Shouldn't Wait

The decrease in solar prices and increase in electricity may make some people wonder if they should wait even longer to go solar, possibly taking advantage of more favorable conditions. However, here are some reasons you shouldn't wait.

• Solar equipment rates are likely to go back up: Although solar equipment is at an all-time low, rates are expected to rise due to tariffs. Solar.com experts predict a net 10-cent per-watt increase in solar hardware prices. Imported panel prices may increase by 3-6 cents per watt, while the system components will add another 3-5 cents per watt to the total cost.

• Unknown Legislative Changes: Since taking office, Trump has made dramatic legislative changes. Although the tax credit is primarily intact, who knows what tomorrow will bring? Consumers should also be aware of the inevitable decrease in the tax credit. While far off, it's best to invest sooner rather than later.

• Electricity Rates Will Continue to Rise: Electricity rates are predicted to continue increasing. The longer you wait, the more money you will throw out the window.

• Cleaner Air: It's never too soon to go solar and begin contributing to cleaner air in your community.

• Energy Independence: Climate change has increased the occurrence of severe storms, and conditions are expected to worsen. Researchers are predicting an above-average hurricane season in 2025, with four hurricanes expected to be major. Solar ensures you have power during storms, which could significantly reduce losses in various households.

How to Claim the Solar Tax Credit in 2025

First, you must ensure you are eligible for the credit. You will file for the year the system was installed, and you can operate (PTO) from your utility company. PTO approval can take two to three weeks or longer, so if you installed your system in December 2024 but didn't get the PTO until January 2025, you must wait and claim your credit on your 2025 taxes.

Here's what the process entails:

1.  Complete IRS Form 5695: Form 5695 requires information about your solar system. Ensure you have your paperwork nearby so you can fill out the form correctly. A tax expert may be able to help, but they will need your system information.

2.    Add Schedule 3 to Form 1040: You must use some of the information in Form 5695 to fill out Schedule 3 on Form 1040, which allows you to claim refundable and nonrefundable credits. Then, fill out the remainder of Form 1040 as required for any tax return. 

How Else Can I Save on Solar?

The solar tax credit can be combined with other incentives, so you save even more on your system. Here are some that may be available in your area:

·  Net metering: Although states have cut back on net metering, it is still available in most areas.

·  Utility Company Rebates: Net metering is the most common rebate utility companies provide, but others may be available.

·  State Incentives: Your state may provide rebates or tax credits that can be combined with the clean energy credit.

·  Renewable Energy Certificates: Similar to net metering, SCRECs allow you to earn money from solar panels' energy.

·  Tax Exemptions: Many states offer tax exemptions, so you don't have to pay taxes on your solar installation. They also provide a property tax exemption, so you don't have to pay additional tax for the value that solar panels add to your home.

Solar America Can Help You Achieve Your Solar Goals for 2025

Both 2024 and 2025 have pros and cons for solar adoption, but one thing is clear—if you are thinking of going solar, it's better to do so sooner rather than later. Considering the uncertain political climate in the country, it's best to take advantage of the tax credit before it's too late. The first step involves finding the right provider, and Solar America can help.

Fill out our online form to receive a list of providers in your area. Choose the one that's best for your solar needs. Our competitive system ensures the lowest prices.

Contact us to take the first step in your solar journey.

FAQs

At what point is solar worth it?

The time it takes to break even varies depending on the cost of your panels, electricity use, and electricity rates in your area. However, most people start generating a profit in 12.5 years or less.

What home improvements qualify for the energy tax credit in 2025?

You may qualify for the tax credit for energy-saving home improvements like exterior doors, windows, and skylights and the addition of efficient appliances, including central air conditioners, natural gas, propane, and oil water heaters, furnaces, hot water boilers, electric or natural gas heat pumps, heat pump water heaters, and biomass stoves and boilers.

Does Solar Increase Home Value?

Yes, solar increases home value. An Energy Sage report reveals that homes with solar panels sell for about 4% more than homes without solar panels.