Section 25D Tax Credit

Section 25D of the Internal Revenue Code is the specific legal provision that authorizes the Residential Clean Energy Credit — the federal tax credit for homeowners who install solar panels and other qualifying clean energy systems on their primary or secondary residences.

Under Section 25D, homeowners can claim a tax credit of 30% of the total cost of a qualifying solar energy system installed between 2022 and 2032. The credit applies to solar electric (PV) systems, solar water heating, battery storage (3 kWh or larger), geothermal heat pumps, small wind turbines, and fuel cells. The 30% rate was extended and enhanced by the Inflation Reduction Act of 2022. After 2032, the credit steps down to 26% in 2033 and 22% in 2034, and is scheduled to expire for residential systems after 2034 (unless extended by Congress). There is no maximum dollar cap on the Section 25D credit for residential systems. The credit is non-refundable, meaning it can reduce your tax liability to zero but cannot generate a refund — however, unused credits can be carried forward to future tax years. This is the same credit commonly known as the “solar tax credit” or “ITC.”