Solar tax credit in 2025

The decision for a homeowner considering a residential solar system purchase has been rendered critically time-sensitive by recent federal legislation. The "One Big Beautiful Bill Act," signed into law on July 4, 2025, abruptly terminates the 30% Residential Clean Energy Credit (under Section 25D of the U.S. Tax Code) for any system expenditures made after December 31, 2025. This action supersedes the long-term, stable incentive structure established by the Inflation Reduction Act of 2022, creating a "cliff edge" where the credit drops from 30% to 0% overnight with no subsequent phase-down period.

For a homeowner weighing a 2025 versus a 2026 installation, the financial implications are stark. A 2025 purchase allows for the capture of the full 30% credit, which translates to an average savings of approximately $9,000 on a typical residential system. A 2026 purchase forfeits this entire amount. While market dynamics may lead to some softening of installation prices in 2026 due to decreased demand, analysis indicates it is highly improbable that such price drops would be sufficient to offset the 30% loss of the credit. Consequently, waiting until 2026 would not only increase the net cost of the system but also significantly extend the investment's payback period, from an average of 9 years to as many as 17 years.

Furthermore, the end-of-year deadline is creating a "deadline rush," which poses its own risks. Homeowners are advised to act decisively to avoid potential price hikes, installer backlogs, and a decline in service quality that may characterize the final months of 2025. The new law's ambiguous "expenditures made" language introduces an element of legal uncertainty, making it imperative for homeowners to aim for full project completion—installation, payment, and commissioning—by the end of 2025 to guarantee eligibility.

This report concludes with a firm recommendation for homeowners to proceed with a solar purchase in 2025. To mitigate the risks associated with the deadline rush and ensure project completion before the December 31, 2025, cutoff, it is strongly advised to initiate the procurement process immediately and aim to sign a contract with a vetted installer no later than the third quarter of 2025.

The Core Financial Decision - 2025 vs. 2026

The End of an Era: The Residential Clean Energy Credit's Abrupt Termination

The financial landscape for residential solar energy in the United States has been fundamentally altered, transforming a stable, long-term incentive program into a short-term, high-stakes decision. This shift necessitates a clear understanding of the new legislative reality and its direct consequences for homeowners.

1.1 The Legislative Shift: From the Inflation Reduction Act (IRA) to the "One Big Beautiful Bill Act" (OBBBA)

In August 2022, the Inflation Reduction Act (IRA) was enacted, providing unprecedented long-term stability for the clean energy market. A key provision of the IRA was the extension and enhancement of the federal solar tax credit, officially named the Residential Clean Energy Credit.[1, 2] This legislation re-established the credit at a robust 30% for systems installed between 2022 and 2032. It also outlined a gradual, predictable phase-down, with the credit rate dropping to 26% in 2033 and 22% in 2034 before expiring in 2035.[1, 3, 4, 5] This decade-long runway was designed to foster sustained investment, encourage domestic supply chain development, and give homeowners and the solar industry confidence and certainty.[4, 6]

This stability was abruptly dismantled on July 4, 2025, with the signing of the "One Big Beautiful Bill Act" (OBBBA).[7, 8, 9] This new law represents a significant "legislative whiplash," reversing the course set by the IRA. The OBBBA specifically targets and eliminates the Residential Clean Energy Credit under Section 25D of the tax code for homeowners.[10, 11] The law states that the credit will expire with respect to any expenditures made after December 31, 2025.[11, 12]

Critically, the OBBBA removes the gradual phase-down period. On January 1, 2026, the credit value for a homeowner purchasing a new solar system will fall directly from 30% to 0%.[7, 9, 13] This policy reversal appears to be a deliberate market shock intended to curtail residential solar adoption, with proponents of the bill citing a preference for prioritizing domestic fossil fuel production and reducing federal expenditures.[14] For the homeowner, the key takeaway is that the December 31, 2025, deadline is firm, and there should be no expectation of a last-minute legislative extension or reprieve.

1.2 Deconstructing the Deadline: "Expenditures Made" vs. "Placed in Service"

The OBBBA introduces a critical point of legal ambiguity that transfers risk from the government directly to the consumer. Previous iterations of the solar tax credit operated under a "placed in service" standard, a well-understood term meaning the system had to be fully installed and operational by the deadline.[15] The new law, however, uses the phrase "expenditures made" after December 31, 2025, as the cutoff point.[12, 15]

This new language lacks a clear, established definition from the Internal Revenue Service (IRS), creating uncertainty. Expert interpretations vary. One tax attorney consulted by the publication EnergySage opined that, at a minimum, a homeowner's system would need to be fully installed and paid for by the deadline to be safe.[9, 15] Another perspective, from the CEO of a national solar loan provider, suggested a more literal reading, where the credit might be claimed only on the portion of the system cost that was actually paid for during 2025.[15] This could mean that if a homeowner paid for half the system in December 2025 and the other half in January 2026, they might only be eligible for a credit on the first half of the cost.

This uncertainty is compounded by a presidential executive order issued on July 7, 2025, which directed the Treasury Department to tighten the eligibility definitions for what constitutes "beginning construction" and making expenditures.[7] The expected guidance is likely to disqualify minimal upfront activities, such as small equipment deposits or submitting an interconnection application, from counting toward eligibility.[7]

Given this lack of definitive IRS guidance and the potential for a strict interpretation, the most prudent and risk-averse strategy for any homeowner is to treat the deadline as an absolute cutoff. To guarantee eligibility for the full 30% credit and avoid any potential challenges during a tax audit, a homeowner should aim to have their solar system fully installed, paid for in its entirety, and ideally commissioned (i.e., approved by the utility and generating electricity) by December 31, 2025.[7, 9, 13] This approach eliminates any ambiguity created by the new legislative language.

Cost-Benefit Analysis: Quantifying the Financial Impact

The decision between a 2025 and 2026 solar installation hinges on a clear-eyed analysis of the costs and benefits. The termination of the federal tax credit creates a significant financial delta between the two years, which is unlikely to be bridged by other market forces.

2.1 Baseline Installation Costs in 2025

To understand the decision, one must first establish a financial baseline. According to market data from mid-2025, the national average cost for a professionally installed residential solar system is in the range of $2.50 to $3.00 per watt.[15, 16, 17, 18] For a typical 11-kilowatt (kW) system, which is a common size for an average American home, the gross cost before any incentives is approximately $28,000 to $29,650.[9, 17, 19, 20]

The 30% Residential Clean Energy Credit is the most significant financial incentive available. For a system costing $29,150, the credit provides a direct, dollar-for-dollar reduction in federal tax liability of $8,745. This brings the effective net cost of the system down to $20,405.[15, 19, 20] This immediate and substantial savings of nearly $9,000 is the central pillar of the value proposition for installing solar in 2025.

2.2 The 2026 Financial Landscape: A Scenario Without the Federal Credit

In 2026, the financial equation changes dramatically. With the federal credit eliminated, a homeowner installing the exact same 11 kW system would be responsible for the full gross cost of $29,150, assuming all other factors remain equal. This represents an immediate financial loss of $8,745 compared to a 2025 installation.

This higher upfront cost has a profound impact on the long-term return on investment. The payback period—the time it takes for electricity bill savings to equal the net cost of the system—is a critical metric. With the tax credit, this period is estimated to be between 7 and 11 years on average. Without the credit, the payback period is projected to extend significantly, potentially to between 15 and 21 years, particularly in states that lack robust local solar incentives.[9, 15] A longer payback period not only delays the financial benefits but also increases the investment's risk profile.

2.3 Market Dynamics: Will Prices Fall in 2026?

A key consideration for a homeowner contemplating a 2026 purchase is whether a potential drop in market prices could compensate for the loss of the 30% tax credit.

On one hand, the abrupt end of the credit is expected to cause a sharp contraction in the residential solar market. Industry associations have warned of a steep decline in installations and the potential loss of up to 80,000 jobs by 2026.[10, 13] This sudden drop in demand could, in theory, force installers and equipment manufacturers to lower their prices to compete for a much smaller pool of customers.[21, 22]

However, several countervailing forces make it highly improbable that prices would fall by a margin sufficient to offset the lost credit. First, the cost of the physical equipment (solar panels, inverters, racking) only accounts for approximately 25% to 35% of the total system price. The majority of the cost is composed of "soft costs," including labor, permitting, interconnection, sales and marketing, and general business overhead.[17] Even a significant drop in equipment prices would have a muted effect on the total installation cost. A 30% reduction in the total price is therefore mathematically and practically unlikely.

Second, the broader economic environment may exert upward pressure on prices. Factors such as persistent inflation, ongoing global supply chain challenges, and surging electricity demand from new sources like artificial intelligence data centers could prevent significant price decreases in the energy sector.[9, 23]

Finally, the "deadline rush" in the latter half of 2025 is likely to cause a temporary increase in installation prices. As demand surges from homeowners rushing to meet the deadline, installers will face capacity constraints. This will give them pricing power, and they may charge a premium for installation slots guaranteed to be completed before the end of the year.[10, 24] This rush could also strain the labor pool, potentially leading to lower-quality workmanship as companies hire quickly to meet demand.[10] Therefore, waiting until the last minute in 2025 also carries financial and operational risks.

In conclusion, while some minor price softening in the 2026 market is possible, it is a high-risk gamble to expect it to compensate for a guaranteed 30% credit. The most likely scenario is that a 2026 installation will be substantially more expensive than a 2025 installation.

Table 1: Comparative Financial Scenario: 2025 vs. 2026 Solar Purchase (11 kW System)

To visualize the direct financial consequences, the following table models a typical solar purchase scenario.

*Note: The 2026 gross cost is held constant for illustrative purposes. While minor price fluctuations are possible, they are highly unlikely to bridge the ~$9,000 gap created by the expired tax credit.

Navigating the 2025 Deadline: Critical Eligibility and Timeline Requirements

To successfully claim the 30% tax credit, a homeowner must not only meet the December 31, 2025, deadline but also satisfy a specific set of eligibility criteria related to system ownership, property type, and qualifying expenses.

3.1 System Ownership: The Deciding Factor for Credit Eligibility

The most fundamental requirement for claiming the Residential Clean Energy Credit is that the homeowner must own the solar system.[15, 19] This ownership can be achieved in two primary ways:

1. Cash Purchase: Paying for the system outright.
2. Solar Loan: Financing the system through a loan. The credit is calculated based on the total system cost, not the amount of the loan that has been paid off.[15]

This distinction is crucial because it excludes two other common methods of acquiring solar: leases and Power Purchase Agreements (PPAs). In a lease or PPA arrangement, a third-party company owns and maintains the solar system on the homeowner's roof. That company then claims the commercial solar tax credit (under Section 48E of the tax code) and, in theory, passes some of the savings on to the homeowner in the form of lower monthly payments.[9, 15, 25] The homeowner in a lease or PPA scenario is not eligible to claim the residential credit directly.

This legislative structure, which eliminates the residential credit (Sec. 25D) while preserving the commercial credit (Sec. 48E), is poised to create a market schism in 2026. For homeowners with access to capital or financing, purchasing a system will remain an option, albeit a more expensive one. For many others, the only financially accessible path to solar will be through a lease or PPA, which offers lower upfront costs but also significantly reduced long-term financial savings compared to owning the system.[9]

3.2 Qualifying Properties and Homeowner Status

The credit is available for qualifying clean energy property installed on a home located in the United States.[1, 26] A "home" can include a house, houseboat, mobile home, cooperative apartment, or condominium.[27]

• Primary and Secondary Residences: For most eligible equipment, including solar panels, wind turbines, and geothermal heat pumps, the credit can be claimed for installations on either a primary residence or a second home.[28] A key exception is for qualified fuel cell property, which is only eligible if installed at the homeowner's primary residence.[28, 29]
• New Construction: The credit applies to both existing homes and newly constructed homes. For a new home, the credit is claimed for the tax year in which the homeowner begins to occupy the residence.[26, 30]
• Ownership and Occupancy: The person claiming the credit must live in the home. Landlords or other property owners who rent out a property but do not reside in it are not eligible for the credit.[1, 31]
• Partial Business Use: If a portion of the home is used for business, the rules are straightforward. If the business use is 20% or less, the full credit can be claimed. If business use exceeds 20%, the credit must be pro-rated based on the percentage of the home used for non-business purposes.[1]

3.3 Eligible and Ineligible Expenses

The 30% credit is calculated based on the total cost of new, qualified equipment and its installation.[14, 15] It is essential to understand which costs qualify and which do not.

Eligible Costs Include:

• Solar PV Panels: This includes traditional panels as well as integrated solar roofing products like solar tiles and shingles that serve both as a roof and a solar collector.[26, 28, 29]
• Balance of System Equipment: This covers essential components like inverters, wiring, and the racking or mounting hardware that secures the panels.[14, 19]
• Labor and Soft Costs: All labor costs for the on-site preparation, assembly, and original installation of the system are eligible. This also includes associated soft costs like permitting fees and inspection costs.[15, 26, 29]
• Battery Storage: Battery storage technology with a capacity of at least 3 kilowatt-hours (kWh) is an eligible expense when installed with the solar system.[1, 26]

Ineligible Costs Include:

• Structural Components: The most significant exclusion is for work that is primarily structural in nature. A standard roof replacement or repair, even if it is a prerequisite for a safe solar installation, does not qualify for the credit.[15, 28] The cost of the new roof must be paid for separately without the benefit of the 30% credit. This creates a critical project sequencing and budgeting challenge for homeowners with older roofs, as they must finance the roof and the solar system as two distinct, though related, projects. The only exception is for building-integrated photovoltaic (BIPV) products, where the solar generating function is inseparable from the roofing function.[28, 32]

Additional Factors Influencing Your Decision

Beyond the primary financial impact of the federal tax credit, a number of secondary factors, including state-level incentives, battery storage rules, and tax filing procedures, should inform the homeowner's decision.

The Role of State and Local Incentives: A Virginia Case Study

While the federal incentive landscape is undergoing a dramatic contraction, state and local programs remain a vital component of the solar value proposition. In a post-2025 world without the federal credit, the financial viability of a solar investment will become even more dependent on the strength and stability of these regional incentives.[15, 22]

4.1 The Post-2026 Financial Equation: State Incentives Take Center Stage

The OBBBA does not directly affect state-level solar programs. For homeowners in states with a strong, multi-layered incentive structure, these programs will help to soften the financial blow of losing the 30% federal credit. Virginia serves as an excellent case study, offering a combination of performance-based incentives, tax abatements, and favorable utility policies.[33, 34]

4.2 Virginia's Incentive Landscape

Homeowners in Virginia can benefit from several key state and local programs that will persist beyond 2025:

• Solar Renewable Energy Certificates (SRECs): This is a performance-based incentive. For every 1,000 kilowatt-hours (kWh) of electricity a residential solar system generates, the homeowner earns one SREC. These certificates can then be sold to utility companies, which are required to purchase them to meet state renewable energy mandates. In 2025, SREC prices in Virginia are trading in the range of $25 to $40 each. For a typical system, this can generate an ongoing revenue stream of several hundred dollars per year.[34, 35]
• Property Tax Exemption: Virginia state law permits individual counties, cities, and towns to offer a property tax exemption for the value added by a solar energy system. Many localities, including Fairfax County and the City of Alexandria, have adopted this policy.[24, 36] This means that if a solar installation increases a home's market value, the homeowner's property tax assessment will not increase as a result. This can translate into annual savings of over $100, depending on the local tax rate and system value.[34]
• Net Metering: This is arguably the most critical state-level policy for solar economics. Net metering is a billing mechanism that requires utilities like Dominion Energy to provide customers with a one-for-one credit for every kWh of excess solar electricity they send to the grid. These credits can then be used to offset the cost of electricity drawn from the grid at night or on cloudy days, effectively allowing the homeowner to use the grid as a free, perfectly efficient battery.[33, 35]

4.3 Emerging Risks to State Incentives

While these state incentives are valuable, they are not guaranteed to remain in their current form indefinitely. There is an emerging risk to Virginia's net metering program that creates a secondary "ticking clock" for homeowners. Dominion Energy has formally proposed changes to its net metering rules that could "reduce that rate significantly for new solar installations".[24] Public hearings on these proposed changes are scheduled for early 2026, and if approved, the new, less favorable rates could take effect as soon as mid-2026.[24, 36]

Critically, homes that install solar before these changes take effect are expected to be grandfathered in under the current, more lucrative 1-for-1 credit rate.[24] This creates a powerful incentive to act sooner rather than later. A homeowner who waits until late 2026 could face a "double blow"—losing the 30% federal tax credit and being forced into a less favorable state net metering policy, severely diminishing the financial return of their solar investment.

Table 2: Virginia State & Local Solar Incentives Overview (2025-2026)

Maximizing Your Benefit: Battery Storage, Tax Filing, and Carryover Provisions

Understanding the nuances of the tax credit—including its application to battery storage and its procedural rules—is essential for maximizing its value in 2025.

5.1 Battery Storage: A Limited-Time Bundled Incentive

The Residential Clean Energy Credit includes a significant incentive for homeowners to adopt energy storage. For installations in 2025, battery storage technology with a capacity of 3 kWh or greater is an eligible expense for the 30% credit.[1, 26] With residential batteries often costing between $10,000 and $20,000, this can amount to a credit of $3,000 to $6,000 on the battery alone.[16, 37]

A homeowner who installs a solar-plus-storage system in 2025 can claim the 30% credit on the entire combined cost of the project. This effectively creates a powerful, one-time opportunity to acquire a home battery system at a substantial discount. After 2025, this bundled incentive will disappear. The decision to purchase a battery in 2026 and beyond will become a separate, more complex financial calculation based on its standalone value propositions, such as providing backup power during grid outages or managing electricity costs under time-of-use utility rates. The 2025 deadline therefore creates a unique window to accelerate the adoption of home energy resilience.

5.2 Understanding the Tax Credit Mechanism: Non-Refundable with Carryover

It is crucial to understand that the Residential Clean Energy Credit is non-refundable. This means the credit can reduce a homeowner's federal tax liability to zero, but they will not receive a cash payment or refund for any credit amount that exceeds what they owe in taxes for a given year.[1, 15] For example, if a homeowner has an $8,000 tax credit but only a $6,000 tax liability, their tax bill will be reduced to $0, but the IRS will not send them a check for the remaining $2,000.

To address this, the tax code includes a credit carryover provision. This allows the homeowner to "carry forward" any unused portion of the credit and apply it against their tax liability in subsequent years.[15, 19, 38] In the example above, the unused $2,000 credit could be applied to the following year's tax return. Expert analysis and IRS guidance suggest this carryover can continue indefinitely until the credit is fully used, providing essential flexibility for homeowners who may have a lower tax burden in the year of installation.[15, 32]

5.3 Tax Filing and Timing

The tax credit must be claimed for the tax year in which the system is installed and the qualifying expenditures are made.[1] Therefore, a system installed anytime in 2025 will be claimed on the federal tax return that is filed in early 2026.

To claim the credit, the homeowner must complete and file IRS Form 5695, Residential Energy Credits, along with their standard Form 1040 tax return.[19, 26, 38] It is highly recommended that the homeowner retain all relevant documentation—including the final contract, proof of payment, and commissioning documents—for their records in the event of a future tax audit.[15, 26]

Conclusion & Final Recommendation

The analysis of the legislative landscape, financial implications, and market dynamics surrounding the U.S. federal residential solar tax credit leads to a clear and unequivocal conclusion. The passage of the "One Big Beautiful Bill Act" has created a stark dividing line at December 31, 2025. A solar system purchase completed in 2025 is eligible for a 30% federal tax credit, while a purchase in 2026 is eligible for no federal credit whatsoever.

The financial case for a 2025 installation is overwhelmingly stronger than for a 2026 installation. The loss of the 30% credit, which amounts to an average of $9,000 in direct savings, cannot be overstated. It is the single most powerful incentive available to homeowners, and its termination will substantially increase the net cost of going solar and nearly double the investment's payback period. The possibility of market prices falling in 2026 to a degree that would compensate for this loss is remote and represents an unjustifiable financial gamble.

Furthermore, waiting until 2026 introduces secondary risks. In states like Virginia, crucial local incentives such as net metering are also facing potential negative revisions. A delayed project could result in a homeowner losing both the federal credit and access to the most favorable state-level policies, compounding the financial penalty.

The primary risk in 2025 is logistical. The "deadline rush" in the second half of the year will inevitably lead to installer backlogs, potential price inflation, and a strained labor force. To mitigate these risks while securing the full financial benefit, proactive and timely action is required.

Final Recommendation: It is strongly recommended that a homeowner seeking to install a residential solar system initiate the procurement process immediately. The goal should be to research and select a vetted installer, and to sign a binding contract, by the end of the third quarter of 2025. This timeline will provide a sufficient buffer to navigate the permitting and installation process and ensure the project is fully installed and paid for well before the December 31, 2025, deadline, thereby guaranteeing eligibility for the full 30% Residential Clean Energy Credit.

Appendix

Appendix A: Full Phase-Down Schedule (Pre- and Post-OBBBA)

The following table starkly illustrates the impact of the "One Big Beautiful Bill Act" (OBBBA) compared to the long-term schedule previously established by the Inflation Reduction Act (IRA). The OBBBA replaces a gradual, decade-long phase-down with an abrupt "cliff edge" at the end of 2025.

Table 3: Federal Residential Solar Tax Credit Rate Schedule: IRA vs. OBBBA [1, 5, 8, 12]

Appendix B: A History of the Federal Solar Tax Credit

The federal tax credit for residential solar energy has a long and varied history, reflecting the nation's shifting energy priorities over more than four decades.

• 1978-1985: The First Generation. In response to the energy crises of the 1970s, the Carter administration established the first "Residential Energy Credit" in 1978. Initially offering a tiered credit, it was increased in 1980 to a 40% credit on systems costing up to $10,000.[5] As the energy crisis subsided, political support for renewables waned, and the credit was allowed to expire in 1985.[5]

• 2005-2008: The Credit's Rebirth. After a 20-year absence, the incentive was reborn as the "Residential Energy Efficient Property Tax Credit" under the Energy Policy Act of 2005, signed by President George W. Bush. This version established a 30% credit but was initially capped at $2,000.[5, 10, 39] In 2008, as part of the Emergency Economic Stabilization Act, the credit was extended for eight years, and, most importantly, the $2,000 cap was removed, making it a true 30% credit on the total system cost.[5]

• 2015-2021: Extensions and Step-Downs. As the 2016 expiration date approached, Congress acted in 2015 to extend the credit but introduced the first gradual phase-down schedule.[5] This schedule was later amended by the Consolidated Appropriations Act of 2021, which froze the credit at 26% for 2021 and 2022, with a planned drop to 22% in 2023 before expiring.[3, 5, 40]

• 2022: The Inflation Reduction Act (IRA). The IRA represented the most significant expansion of the credit in its history. It retroactively restored the rate to 30% for 2022, renamed it the "Residential Clean Energy Credit," and extended it at the 30% rate for a full decade, through 2032, before beginning a new phase-down.[3, 4]

• 2025: The "One Big Beautiful Bill Act" (OBBBA). This legislation abruptly reversed the long-term stability provided by the IRA. Signed into law on July 4, 2025, it set a final expiration date of December 31, 2025, for the residential credit, eliminating the phase-down and cutting the incentive off nearly a decade ahead of the IRA's schedule.[7, 9]

Appendix C: A Homeowner's Guide to IRS Form 5695

When filing federal taxes for the year 2025 (in early 2026), a homeowner who installed a qualifying system will need to complete and submit IRS Form 5695, Residential Energy Credits. The following is a simplified guide to the key lines in Part I of the form, which pertains to the Residential Clean Energy Credit. This is based on the most recent IRS instructions and should be confirmed with a tax professional.[27, 29, 32]

Part I – Residential Clean Energy Credit

• Line 1: Qualified solar electric property costs. Enter the total qualifying costs for the solar panel system here. This includes the panels, inverter, mounting hardware, wiring, and all associated labor and permitting fees.
• Line 4: Qualified battery storage technology costs. If a qualifying battery (at least 3 kWh capacity) was installed, enter its total cost here.
• Line 5: Add lines 1 through 4. This gives the total cost basis for the credit.
• Line 6a: Multiply line 5 by 30% (0.30). This is the initial calculation of the 30% credit.
• Line 6b: Enter the amount from line 6a. This is the calculated credit before any limitations.
• Lines 7-11: Fuel Cell Limitation. These lines apply only to fuel cell property, which has a specific credit limit based on its kilowatt capacity. For a standard solar and battery installation, these lines are typically not used.
• Line 12: Add lines 6b and 11. This is the total credit before tax liability limits.
• Line 13: Credit limit from the tax liability worksheet. The homeowner (or their tax software/preparer) will calculate their total tax liability. The credit cannot exceed this amount. This value is entered here.
• Line 14: Residential clean energy credit. This line shows the smaller of line 12 or line 13. This is the amount of the credit that will be applied to the current year's tax bill.
• Line 15: Credit carryforward to the next tax year. If the calculated credit on line 12 was larger than the tax liability limit on line 13, the difference is entered here. This is the amount that can be carried forward to the next year's tax return.

Documentation: The IRS does not require submission of receipts or contracts with the tax return. However, it is imperative to keep all documentation related to the solar installation—including the final signed contract, invoices, proof of full payment, and utility interconnection approval—for personal records. These documents would be essential in the event of an IRS audit.[15, 26]