Residential Clean Energy Credit | Internal Revenue Service

Transforming Energy Bills with a 30% Credit

The Residential Clean Energy Credit—formerly known as the Residential Energy Efficient Property Credit—offers homeowners a 30% federal tax credit on qualifying renewable energy installations. Reauthorized and expanded by the Inflation Reduction Act of 2022, the credit runs through 2032 at a full 30% rate before phasing down in later years. Eligible technologies include solar photovoltaic (PV) systems, battery storage with at least 3 kilowatt-hours of capacity, solar water heaters, geothermal heat pumps, small wind turbines, and fuel cells. Because the credit has no annual cap and can be carried forward, homeowners can unlock tens of thousands of dollars in tax savings while lowering long-term utility costs and increasing property value.

Who Benefits Most

Homeowners installing rooftop solar plus battery backup to keep lights on during outages.
Households converting from oil or propane to geothermal systems for consistent heating and cooling.
Vacation-home owners upgrading second residences to renewable systems (rentals may qualify under certain usage rules).
DIY enthusiasts working with certified installers who can document eligible expenses and equipment ratings.

Eligible Property Types

The credit applies to property located in the United States and used as a residence by the taxpayer. Eligible homes include:

Primary residences.
Second homes (not rental properties used full-time for business).
New construction where systems are placed in service before occupancy.

Rental properties generally do not qualify, but mixed-use properties can allocate expenses proportionally to the residential portion. Consult a tax professional if you have a home office or rental unit on site.

Qualifying Expenditures

The 30% credit covers:

Solar PV systems: Panels, inverters, racking, wiring, energy storage devices (≥3 kWh), sales tax, permitting, and labor.
Solar water heaters: Must be certified by the Solar Rating Certification Corporation (SRCC) or comparable entity and provide at least half of the home’s water heating needs.
Battery storage: Standalone storage qualifies beginning in 2023 as long as capacity is at least 3 kWh.
Geothermal heat pumps: Systems meeting ENERGY STAR requirements; includes drilling, ground loops, heat exchangers, and related labor.
Small wind turbines: Nameplate capacity up to 100 kW.
Fuel cells: Limited to $500 per half-kilowatt; require a principal residence and at least 30% efficiency.

Planning Your Project

Energy audit first: Conduct an audit to identify baseline energy usage and opportunities for efficiency. Some states subsidize audits; results help size systems appropriately.
Gather quotes: Solicit at least three bids from licensed contractors. Compare panel efficiency, equipment warranties, production estimates, and financing terms.
Review financing options: Cash, home equity loans, solar loans, or power purchase agreements (PPAs). Remember, you must own the system to claim the credit; PPAs and leases typically do not qualify.
Check local incentives: Stack federal credits with state rebates, utility incentives, Solar Renewable Energy Credits (SRECs), and property tax exemptions. Use the Database of State Incentives for Renewables & Efficiency (DSIRE).
Understand permitting timelines: Factor in design review, interconnection approvals, and supply chain constraints. Keep all invoices and contracts.

Filing the Credit

Form 5695: Report qualified expenditures on Part I. Enter the total cost, calculate 30%, and apply any carryforward from prior years.
Tax liability: The credit reduces your federal income tax liability. If the credit exceeds your tax, carry unused amounts forward indefinitely while the credit remains in effect.
Documentation: Retain manufacturer certifications, receipts, financing agreements, and photos. The IRS may request proof of installation dates and equipment specs.

Strategies to Maximize Savings

Combine with the Energy Efficient Home Improvement Credit. Install insulation, efficient windows, or heat pump water heaters separately to claim additional credits (subject to annual caps) while using the Residential Clean Energy Credit for renewables.
Phase projects over multiple years. If tax liability is limited, consider installing solar one year and battery storage the next to spread credits and align with cash flow.
Coordinate with electric vehicle (EV) charging. Solar plus storage pairs well with EV adoption; discuss load profiles with installers to size systems for future vehicles.
Monitor utility net metering policies. States vary in how they credit excess generation. Favor installers experienced with your utility’s interconnection process to maximize export value.
Track Inflation Reduction Act rebates. Upcoming Home Energy Rebate programs (HOMES, HEEHR) can subsidize complementary efficiency upgrades. Coordinate project timing once states launch programs.

Addressing Common Obstacles

Roof condition: Replace or repair roofs before installing solar. Some roofing costs attributable to mounting solar panels can be included in the credit if necessary for installation.
HOA restrictions: Federal law (Solar Rights Act) limits HOA ability to block solar, but design review may still be required. Submit detailed plans and cite state solar access laws.
Grid interconnection delays: Start paperwork early, particularly in high-demand states. Some utilities offer expedited pathways for small systems under certain kilowatt thresholds.
Battery code requirements: Verify that installers follow National Electrical Code (NEC) provisions for energy storage. Obtain documentation for fire code compliance.
Tax appetite: If you lack sufficient tax liability (e.g., retirees with low taxable income), explore community solar or state incentives that offer rebates rather than credits. Alternatively, partner with family members who co-own the property and have tax liability.

Frequently Asked Questions

Does the credit apply to labor? Yes. Labor, permitting, and inspection fees integral to installation qualify.

Can I claim the credit for DIY projects? Self-installed systems may qualify if you can document equipment costs and compliance with local codes. However, labor is not compensable unless paid to a contractor.

What if I sell my home? Credits already claimed stay with you; they do not transfer to the buyer. Future owners cannot claim the credit unless they install new qualifying equipment.

Can landlords claim the credit? Generally no, unless they live in the property. However, multifamily homeowners occupying part of the building can claim a percentage proportional to owner-occupied units.

Do state incentives reduce the federal credit? Rebates that reduce the project cost must be subtracted before computing the credit. State tax credits do not reduce the federal credit amount.

References and Tools

Checklist for Homeowners

Initial research: Audit energy use, explore DSIRE incentives, and confirm eligibility.
Design phase: Choose reputable installer, sign contract detailing equipment models, and confirm project timeline.
Installation: Track invoices, take photos, and ensure inspections are completed. Retain interconnection approval letters.
Year-end prep: Compile receipts, Form 5695, and tax liability estimates. Consult a tax professional if needed.
Post-installation monitoring: Use monitoring apps to verify production, adjust usage patterns, and maintain equipment (panel cleaning, battery firmware updates).

By leveraging the Residential Clean Energy Credit alongside state and utility incentives, homeowners can dramatically reduce upfront costs, shield themselves from rising energy prices, and contribute to a resilient, low-carbon energy grid.