Solar Tax Credit Calculator (ITC)

How the Solar Tax Credit Calculator Works

The solar tax credit landscape changed dramatically in mid-2025. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, repealed the federal residential clean energy credit - IRC Section 25D - for any solar energy system placed in service after December 31, 2025. This calculator accounts for that change and helps you determine exactly what federal and state credits apply to your specific installation.

For systems installed in 2025 or earlier, the calculator applies the 30% federal Investment Tax Credit (ITC) rate set by the Inflation Reduction Act of 2022. For systems installed in 2026 or later, the federal residential ITC rate is 0%. In either case, the calculator layers in any state-level solar tax credit you specify, applies any applicable cap, and computes your total savings, net system cost, and - if applicable - a year-by-year carryforward schedule for unused federal credits.

The Math Behind It

The calculator uses three core formulas depending on installation year and jurisdiction:

Federal credit (pre-2026 installations only):

The ITC rate is 30% for systems placed in service from 2022 through 2025, and 26% for systems placed in service in 2020-2021. For 2026 onward, the residential ITC rate is 0% - Section 25D no longer applies.

State credit:

If you enter a state credit cap of $0, the calculator treats it as "no cap" and applies the full percentage. State credits are calculated independently of the federal credit - you can claim both if you qualify.

Net cost and carryforward:

Because the federal ITC is a non-refundable credit, it can reduce your federal income tax to $0 but will not generate a refund. Any excess rolls into the next tax year. There is no expiration on carryforward - you can claim the remaining balance on IRS Form 5695 in each subsequent year until it is fully used. Note that the carryforward is not automatic; you must actively file Form 5695 each year to claim it.

Key Inputs Explained

Installation Year is the most important input. Under IRC Section 25D (now repealed), the credit is based on when the system is "placed in service" - meaning fully installed, inspected, and operational. Signing a contract or making a deposit in 2025 does not qualify if the system isn't operational until 2026.

Total Solar System Cost includes all eligible expenses: panels, inverters, racking, wiring, installation labor, permit and inspection fees, sales tax on equipment, and engineering or design fees. For pre-2026 installations, every dollar of eligible cost feeds directly into the 30% credit calculation.

Battery Storage Cost is entered separately because battery storage (minimum 3 kWh capacity) became ITC-eligible under the Inflation Reduction Act. For pre-2026 installations, standalone batteries qualified even without solar panels.

Annual Federal Tax Liability determines whether you can use the full credit in one year or need to carry some forward. Check line 24 of your most recent IRS Form 1040 for your total federal income tax.

State Credit % and State Credit Cap vary widely by state. Some examples: South Carolina offers 25% (up to $35,000), New York offers 25% (capped at $5,000), and Arizona offers 25% (capped at $1,000). Check dsireusa.org for the latest programs in your area.

Step-by-Step Example

Scenario A - 2025 Installation (federal credit still available): A homeowner in South Carolina installed a $25,000 solar panel system with a $10,000 battery in November 2025. Their annual federal tax liability is $6,000. South Carolina offers a 25% state tax credit.

Step 1 - Calculate eligible cost:

Step 2 - Calculate federal credit:

Step 3 - Calculate state credit:

Step 4 - Calculate total savings and net cost:

Step 5 - Determine carryforward: The homeowner's federal tax liability is $6,000, but the federal credit is $10,500. In the installation year (2025), they use $6,000 and carry forward $4,500 to 2026. In 2026, assuming the same tax liability, they claim the remaining $4,500 and still owe $1,500 in federal taxes that year.

Result: This homeowner saves $19,250 in total credits, paying just $15,750 net for a $35,000 system - a 55% reduction. The federal portion takes two years to fully claim via carryforward.

Scenario B - 2026 Installation (no federal credit): The same homeowner waits and installs the identical system in March 2026. The federal ITC is $0 - Section 25D no longer applies. Only the SC state credit of $8,750 remains. Net cost: $35,000 − $8,750 = $26,250. That one-year delay cost them $10,500 in lost federal credits.

Common Mistakes to Avoid

• Mistake: Assuming the 30% federal residential credit still exists in 2026. Why it matters: The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, repealed IRC Section 25D for systems placed in service after December 31, 2025. Many online calculators and even some solar installers' quotes have not been updated. If someone builds the 30% credit into their financial projections for a 2026 installation, their actual cost will be thousands of dollars higher than expected.
• Mistake: Confusing "placed in service" with "purchased" or "contracted." Why it matters: The IRS defines eligibility based on when the system becomes operational, not when you sign a contract or make a down payment. If you signed a contract in October 2025 but the installation wasn't completed and inspected until February 2026, you do not qualify for the federal credit. This distinction has caught many homeowners off guard, especially those with delayed installations.
• Mistake: Confusing the residential ITC with the commercial ITC. Why it matters: The commercial Investment Tax Credit (Section 48E) was not fully repealed - commercial and business projects can still qualify if construction begins by July 4, 2026. Some homeowners read headlines about the ITC "still being available" and incorrectly assume it applies to their residential system. Section 48E applies to businesses, tax-exempt entities, and commercial properties - not personal residences.
• Mistake: Not filing Form 5695 to claim carryforward credits. Why it matters: If you installed before the deadline and your credit exceeded your tax liability, the unused portion carries forward - but only if you actively claim it. You must file IRS Form 5695 (Residential Energy Credits) each year you carry forward a balance. The IRS will not apply the credit automatically. Missing even one year doesn't forfeit the credit, but it delays your savings.
• Mistake: Confusing a tax credit with a tax deduction. Why it matters: A $10,500 tax credit reduces your tax bill by exactly $10,500 - dollar for dollar. A $10,500 tax deduction would only save you $10,500 × your marginal tax rate (e.g., $2,520 at the 24% bracket). This distinction is critical when comparing solar incentives to other financial benefits. The ITC's value was always that it was a direct credit, not a deduction.

When to Use This Calculator

• Claiming a carryforward credit: If you installed solar in 2025 or earlier and didn't use the full federal credit in the first year, use this calculator to map out your year-by-year carryforward schedule and plan your tax filings.
• Evaluating a 2026+ installation: With the federal residential ITC at 0%, use the calculator to see how much state credits alone can offset your system cost and whether solar still makes financial sense in your state.
• Comparing installation timing: Run scenarios for different installation years side by side to understand the financial impact of the Section 25D repeal - especially useful if you're advising clients who are on the fence.
• Quoting solar jobs as an installer: Provide accurate, up-to-date financial projections to customers. Showing both the federal and state credit breakdown (or the absence of federal credits) builds trust and avoids post-sale disputes over expected savings.