Form 5695 instructions: How to claim the solar tax credit before it expires

If you're considering solar or you already have a solar panel system on your property, you've probably heard about the federal solar tax credit, also known as the Investment Tax Credit (ITC). The ITC is one of the best ways to save money when you go solar because it reduces your overall costs by thousands of dollars—but it won’t be available for much longer. 

The ITC makes going solar significantly more affordable for homeowners and businesses by granting a dollar-for-dollar reduction of your tax bill equal to 30% of the total cost of a solar energy system. Under Biden-era legislation, it was set to remain law through 2034, but Trump’s reconciliation bill eliminates the residential tax credit on January 1, 2026.

Homeowners who go solar in 2025 will still be able to claim the 30% tax credit, but the clock is ticking. If you're considering solar, now is the time. Waiting even a few months can disqualify you from an additional $9,000 in savings.

In this article, we'll walk you through the step-by-step instructions on how to claim your federal solar tax credit in 2025.

There are three main steps you'll need to take to benefit from the ITC:

1. Determine if you're eligible

2. Complete IRS Form 5695

3. Add to Schedule 3 and Form 1040

Form 5695 is the official IRS tax form you must use to claim the federal solar tax credit when you file your taxes. You can download a copy of Form 5695 (PDF) on the IRS website. The form is updated every year, so make sure you use the most recent version available.

You can also claim the tax credit for qualified battery storage technology using Form 5695. As long as your costs for installing battery storage were incurred after Dec. 31, 2022, they are eligible to qualify for the ITC. If you purchased your battery a few years ago, but didn't realize you could claim the tax credit, you can retroactively apply for it.

You are eligible for the federal ITC if you own your solar energy system rather than lease it. If you sign a lease agreement, the third-party owner gets the solar tax credit associated with the system. This is also true for the vast majority of state and local incentives for solar. In some special cases, a lease will grant you the financial benefits associated with the sale of solar renewable energy certificates (SRECs).

You're also eligible even if the solar energy system is not on your primary residence—as long as you own the property, live in it for part of the year, and don't rent it out as a landlord, you can claim the solar tax credit.

If your federal tax liability is less than your total ITC savings, you’ll receive tax credits equivalent to your liability. In the past, you could carry forward any excess credits to the next year. However, the new law likely does not allow for rollover of credits.

Claiming the ITC is easy. To get started, you'll first need your standard IRS 1040 Form, IRS Form 5695, "Residential Energy Credits," and the instructions for Form 5695. The purpose of Form 5695 is to validate your qualification for renewable energy credits.

1. Enter your energy efficiency property costs

Form 5695 calculates tax credits for various qualified residential energy improvements, including geothermal heat pumps, solar panels, solar water heating, small wind turbines, and fuel cells. We'll use a solar energy system's $25,000 gross cost as an example.

First, you will need to know the qualified solar electric property costs. This is the total gross cost of your solar energy system after any cash rebates. Add that to line 1. Next, insert the total cost of any additional energy improvements on lines 2 through 5 and add them up on line 6a. In this example, we'll assume you don't have any additional energy efficiency property costs.

On line 6b, multiply line 6a by 30%. This is the total value of your tax credit (but not necessarily the amount you'll receive, depending on your tax bill).

Assuming you're not also receiving a tax credit for battery storage or fuel cells installed on your property and aren't carrying forward any credits from last year, put the value from line 6b on line 13 of Form 5695.

2. Determine your tax liability

Next you need to calculate if you have enough tax liability to get the full 30% credit in one year. You must have completed sections 1 through 18 on your standard 1040 Form to get started. For this example, we'll assume your tax liability equals $5,000.

Now, you'll need the instructions for Form 5695. On page 4, you'll see a worksheet to calculate the limit on tax credits you can claim. Add the number on line 18 of your 1040 Form to line 1 of this worksheet. If you're claiming tax credits for things like adoption expenses, interest on a mortgage, or buying a plug-in hybrid or electric vehicle, you'll need that information in line 2. You'll then subtract the number on line 2 from line 1 to determine your residential energy-efficient property credit limit. (For this example, it's still equal to $5,000).

3. Calculate your tax credit

Finally, enter the result of line 3 of the worksheet on line 14 of Form 5695. Review line 13 and line 14, and put the smaller of the two values on line 15.

If your tax liability is smaller than your tax credits, subtract line 15 from line 13, and enter it on line 16. That's the amount you can claim on next year's taxes (unless the new law eliminates the ability to roll credits over).

The value on line 15 is your amount of renewable energy credit this year. You must add that number to Schedule 3 and, ultimately, to your regular tax form, IRS Form 1040.

5. Enter value into Schedule 3

First, you need that number on line 15 from Form 5695, which, in our example, is $5,000. Add this number to line 5 on Schedule 3 (and make sure to attach Form 5695).

After adding in any other nonrefundable tax credits (which our example is $0), you'll add up your total sum of refundable tax credits on line 8.

6. Add value to Form 1040

Finally, you'll need to take the number from Schedule 3, line 8, and add it to Form 1040, line 20 and you will have completed all the necessary steps to filing out your tax forms.

What does 30% mean for the average solar shopper? According to EnergySage Marketplace data, the average national gross cost of installing a solar panel system is about $29,360. At that price, the solar tax credit can reduce your federal tax burden by up to $8,808, bringing your total cost down to around $20,552—and the ITC is just one of many rebates and incentives that can reduce the cost of solar for homeowners.

How does the solar tax credit work for tax year 2025?

The federal solar tax credit allows you to deduct 30% of the cost of installing a solar energy system from your federal taxes.

What is the federal solar tax credit income limit for 2025?

There is no income limit on the ITC program, so taxpayers in all income brackets may be eligible.

When can I claim my solar tax credit?

You can claim the federal solar tax credit this year as long as you have a tax liability and installed your system before January 1, 2026. After this year, homeowners will no longer qualify for the ITC. 

What are the steps for claiming solar tax credit for tax year 2024 and 2025?

There are three main steps you'll need to take to benefit from the ITC:

1. Determine if you're eligible

2. Complete IRS Form 5695

3. Add to Schedule 3 and Form 1040

If you haven't started your solar journey yet and want to take advantage of the ITC, now is the time. Still, discernment is key: it’s important to make informed decisions. EnergySage can help shield you from bad actors looking to take advantage of condensed timelines, compare quotes from trusted installers, understand your financing options, and find the right system for your home—before and after the federal tax credit disappears.