Federal Investment Tax Credit (ITC)

The Federal Investment Tax Credit (ITC) is the most significant financial incentive for residential solar in the United States. It allows homeowners to deduct 30% of the total cost of a solar energy system from their federal income taxes.

The ITC applies to the full installed cost of the system, including panels, inverters, racking, batteries (if installed at the same time), wiring, and installation labor. For example, if your solar system costs $25,000, the ITC provides a $7,500 tax credit — reducing the amount of federal income tax you owe dollar-for-dollar. The 30% rate is locked in through 2032 under the Inflation Reduction Act, after which it steps down to 26% in 2033 and 22% in 2034. The ITC is a tax credit, not a deduction, meaning it directly reduces your tax bill rather than just lowering your taxable income. If your tax liability is less than the credit amount, the remaining credit can be rolled forward to the following tax year. There is no cap on the credit amount for residential systems. Homeowners should consult a tax professional to ensure they qualify and can fully utilize the credit.