What Is the Federal Investment Tax Credit?
The Investment Tax Credit, established under the Inflation Reduction Act of 2022 and extended through subsequent legislation, provides a dollar-for-dollar reduction in federal income tax liability for qualifying clean energy installations. As of 2026, the residential clean energy credit allows homeowners to claim 30% of the total cost of eligible systems, including equipment, labor, and installation expenses.
Unlike a tax deduction, which reduces taxable income, a tax credit directly reduces the amount of tax owed. This distinction makes the ITC particularly valuable, as the full credit amount translates to real savings on your tax return.
Qualifying Equipment and Systems
The ITC covers a broad range of residential clean energy technologies. As of 2026, eligible systems include:
- Solar photovoltaic (PV) systems: Rooftop or ground-mounted solar panels that generate electricity for your home
- Battery storage systems: Standalone batteries with a capacity of 3 kWh or greater, regardless of whether they are paired with solar
- Solar water heating: Systems that use solar energy to heat water for domestic use
- Fuel cells: Residential fuel cell systems that generate electricity
- Small wind energy: Residential wind turbines for electricity generation
- Geothermal heat pumps: Systems that use ground-source heat exchange for heating and cooling
Credit Rates and Timeline
The Inflation Reduction Act established a schedule for the residential clean energy credit. As of 2026, the credit rate remains at 30% for systems installed through 2032. After 2032, the credit is scheduled to step down gradually:
- 2022-2032: 30% of qualified expenditures
- 2033: 26% of qualified expenditures
- 2034: 22% of qualified expenditures (scheduled to expire for residential after 2034)
These rates are based on current law as of 2026 and may be subject to future legislative changes. Homeowners should consult with tax professionals for the most current information.
Eligibility Requirements
To qualify for the residential clean energy credit, homeowners must meet several requirements:
- The property must be located in the United States
- The system must be installed at a residence owned by the taxpayer (primary or secondary home)
- The system must be new or being used for the first time (used equipment does not qualify)
- The taxpayer must own the system outright (leased systems do not qualify for the homeowner)
- The system must meet applicable fire and electrical code requirements
How to Claim the Credit
Claiming the ITC requires completing IRS Form 5695 (Residential Energy Credits) and submitting it with your federal tax return. The credit is claimed for the tax year in which the system is installed and placed in service. Key documentation to maintain includes:
- Itemized receipts for all system costs including equipment and installation
- Manufacturer certifications for qualifying equipment
- Proof of installation date and system commissioning
- Documentation of property ownership
Important Considerations
The ITC is a non-refundable credit, meaning it can reduce your tax liability to zero but cannot result in a refund beyond what you owe. However, if your tax credit exceeds your tax liability in the year of installation, you may carry forward the unused portion to future tax years.
State and utility incentives may be combined with the federal ITC in many cases, though specific stacking rules vary by program. Some state rebates may reduce the eligible basis for calculating the federal credit. Consulting with a tax professional familiar with energy incentives is advisable to maximize available benefits.
Next Steps
Understanding your eligibility for the federal Investment Tax Credit is an important first step in evaluating the financial viability of a clean energy installation. Program administrators and qualified tax professionals can provide guidance specific to your situation. As with all tax matters, individual circumstances vary, and professional consultation is recommended.