Solar Savings at Tax Time: Guide for PA, NJ, & DE
If you installed solar panels for the altruistic reason of benefiting the environment, that goodwill is about to pay off when it comes to your solar savings at tax time! Tax season is officially here, and for newly solar-powered homes, a federal tax credit could be the ticket for big savings.
Not only do solar panels save money on your monthly energy bill, but you may also qualify for the solar Investment Tax Credit (ITC) — depending on when your system was installed. Read on to understand exactly what incentives apply to you, what has changed, and how to maximize every dollar of your solar investment.
What Changed with Solar Savings at Tax Time After December 31, 2025
If you’ve been researching solar savings at tax time, the first thing to know is that a major policy change took effect at the end of 2025. The residential Section 25D federal solar tax credit — which offered homeowners a 30% credit on solar installation costs — expired on December 31, 2025.
Many homeowners and most installers were preparing for this deadline, so it's critical that you understand what that means for your tax return and your future solar investment decisions.
Here's a clear breakdown of where things stand:
- Section 25D (Residential Clean Energy Credit): Expired December 31, 2025. If you had solar panels installed and placed in service on or before that date, you are still eligible to claim the credit on your taxes. If your system was placed in service after that date, Section 25D no longer applies.
- Section 48E (Commercial / Clean Energy Investment Tax Credit): This investment tax credit continues through 2027 for commercial projects and third-party-owned systems, such as solar leases and power purchase agreements (PPAs). If you are a business owner or have entered into a third-party solar lease, consult a tax professional to understand how Section 48E applies to your situation.
- State and utility incentives: These are alive, well, and in many cases more valuable than ever. Pennsylvania, New Jersey, Delaware, and Maryland all have active programs delivering real financial benefits to homeowners who go solar today.
If You Installed Solar Panels Before December 31, 2025: How to Claim Your Federal Tax Credit
Congratulations — if your solar system was placed in service before the expiration date, you are still entitled to claim the federal solar tax credit. Here's everything you need to know to claim your credit correctly this tax season.
Solar System Purchase
The taxpayer who owns the residence where the solar system is being installed must purchase the solar system outright. If the system is financed through the solar company, the company claims the tax credit.
While it may seem easier to lease the system and spread out the cost, the tax credit can put real money back in your pocket — making ownership the smarter financial move for most homeowners.
What Is the Residential Clean Energy Credit?
The residential clean energy credit is a federal credit that provides a dollar-for-dollar reduction of your federal tax liability. Unlike a deduction that merely reduces your taxable income, a tax credit directly reduces the amount of money you owe the federal government — dollar for dollar.
Under Section 25D, the federal credit covered 30% of the total cost of your solar installation, including:
- Solar panels and solar system hardware
- Labor costs for on-site preparation, assembly, and installation
- Wiring, piping, and electrical work
- Battery storage technology is installed as part of the solar system
- Solar water heaters (that meet IRS eligibility requirements)
- Geothermal heat pumps and fuel cells that qualify under the same residential clean energy provisions
This means if your system costs came to $30,000, the investment tax credit (ITC) would reduce your federal tax bill by $9,000.
Deductible Amount and Timeline
The tax credit provides a dollar-for-dollar reduction on the income taxes of the taxpayer (or the business that is leasing the system to a customer). The credit allowed a deduction of 30% of the cost of installing the solar system from federal taxes for systems placed in service through December 31, 2025.
If you installed in 2023 or 2024, the 30% rate applies in full. Systems placed in service after December 31, 2025, are no longer eligible for the Section 25D residential clean energy credit.
Deductible Costs
The costs that are considered eligible include the solar power hardware plus the labor for on-site preparations, parts assembly, installation, piping, and wiring of the system to the home. Additional qualifying costs include battery storage technology, solar water heaters, geothermal heat pumps, and fuel cells that meet IRS requirements.
If the costs exceed the maximum amount of credit you can use in the tax year they are filed, the remainder can be carried forward and applied in the following year's tax filings — and subsequent future tax years — until the full credit is used.
Carry Forward Provisions
One of the most important financial benefits of the solar tax credit is the ability to carry forward unused credit to future tax years. Many homeowners find that their credit exceeds their tax liability for the year the system was installed.
The IRS allows you to carry forward the remaining balance to the following year (and subsequent years) until the full value is used.
For example, if you owe $5,000 in federal taxes but your credit is $9,000, you would reduce your tax bill to zero and carry forward the remaining $4,000 to apply in future tax years.
How to Claim Your Credit
Notify your tax professional or accountant about your solar power addition when sitting down to discuss your yearly federal tax return. Be sure to retain and provide all receipts showing the cost of deductible charges from the installation.
If you file your own taxes, you'll need to complete IRS Form 5695, "Residential Energy Credits," to show qualification for the credit and attach it to your return.
Here's the step-by-step process:
- Gather your documentation. Collect all receipts and invoices from your original installation — equipment, labor, and any eligible add-ons like battery storage or solar water heaters.
- Complete IRS Form 5695. This form walks you through calculating your credit based on your system's costs. Enter the total cost of your solar system in Part I (Residential Clean Energy Credit).
- Calculate your credit. Multiply your eligible system costs by 30% to arrive at your credit amount.
- Check your tax liability. The credit applies only against taxes you owe. If the credit exceeds your tax liability for this tax year, the remainder carries forward.
- Attach to your return. File Form 5695 alongside your standard federal tax return (Form 1040).
- Keep your records. The Internal Revenue Service (IRS) recommends retaining all receipts related to your solar installation for at least three years after you file.
If you work with a tax professional, simply let them know you installed solar panels and provide your receipts. They will handle the credit file and IRS form on your behalf.
Solar Savings for PA, NJ, DE & MD Homeowners in 2026
If you live in our service area, state and utility incentives make going solar worth it. Sometimes, these programs save you more over time than the federal credit does.
Pennsylvania Solar Incentives
PA SREC Program (Solar Renewable Energy Credits) Pennsylvania’s SREC program allows homeowners with solar panels to earn one SREC for every 1,000 kWh (1 MWh) of electricity their system generates.
These credits can be sold on the open market to utilities that are required by the state's Alternative Energy Portfolio Standard (AEPS) to source a portion of their electricity from renewable energy.
SRECs represent ongoing value — not just one-time tax savings — and many PA homeowners earn hundreds of dollars per year through them.
PECO Rebates: PECO customers in southeastern Pennsylvania may be eligible for rebates through PECO's energy efficiency programs. These rebates reduce your upfront cost and stack on top of any remaining federal incentives, lowering the effective total cost of your solar system.
Net Metering Pennsylvania has a net metering policy that requires utilities to credit solar customers for excess electricity their panels send back to the grid. This directly reduces your utility bill month after month — making solar savings real even without a federal credit. Avoided utility bills are one of the most powerful long-term savings drivers for solar homeowners.
New Jersey Solar Incentives
New Jersey is one of the strongest solar markets in the country. NJ homeowners benefit from the Transition Renewable Energy Certificate (TREC) program, robust net metering, and a property tax exemption on the added value that solar panels bring to your home.
New Jersey's clean energy programs are among the most generous in the nation, meaning many homeowners enjoy substantial financial incentives even without a federal solar tax credit.
Delaware Solar Incentives
Delaware offers net metering and the Green Energy Fund rebate program, which provides direct rebates for residential solar installations. Delaware's rebate program has helped many homeowners significantly reduce the effective cost of going solar.
Maryland Solar Incentives
Maryland homeowners can take advantage of the Residential Clean Energy Grant Program, net metering, and a property tax exemption for solar systems. Maryland's commitment to clean energy makes it one of the more incentive-rich states in the region.
The Investment Tax Credit (ITC) for Commercial & Third-Party Systems
If you're a business owner considering solar, or if you're exploring a solar lease or PPA, the commercial Investment Tax Credit (ITC) under Section 48E continues to provide financial incentives through 2027.
The investment tax credit ITC applies to eligible commercial solar projects and third-party-owned residential systems, delivering significant tax savings for businesses investing in renewable energy.
Business owners should work closely with a tax professional to determine how the Section 48E federal credit applies to their specific situation, as eligibility rules, eligible system costs, and carry forward provisions differ from the residential Section 25D credit.
Why Solar Still Makes Financial Sense in 2026
Even without the residential federal solar tax credit, the financial case for solar in Pennsylvania, New Jersey, Delaware, and Maryland remains strong. Here's why:
Avoided utility bills. Most homeowners who go solar see dramatic reductions in monthly electricity costs. Over a 25-year system lifetime, these avoided utility bills typically represent the largest component of your total solar savings — often exceeding $30,000 or more, depending on your energy usage and local electricity rates.
State and utility incentives. As detailed above, many states offer rebates, SRECs, net metering, and property tax exemptions that deliver real, recurring value.
Energy independence. As electricity prices continue to rise, locking in low-cost solar energy protects you from rate volatility and increases your energy independence. Many homeowners add battery storage technology to further reduce their dependence on the grid.
Property value. Studies consistently show that homes with solar panels sell for more than comparable homes without solar. The value added to your property is typically exempt from property tax increases in most states in TerraSol's service area.
Long-term savings. Solar systems typically last 25–30 years. The long-term savings from reduced electricity bills, plus any state incentives, make solar one of the highest-return home investments available to most homeowners.
Get a Free Solar Savings Analysis from TerraSol
For more information about installing a solar power system for your home, or to take full advantage of every available financial incentive for your solar investment.
Contact TerraSol Energies at (888) 873-9995 or request a free custom solar proposal today. We install solar systems in Pennsylvania, New Jersey, Delaware, and Maryland, and our team is ready to help you understand exactly what solar savings at tax time and throughout the year can mean for your home, your energy costs, and your financial future.
Frequently Asked Questions About Solar Savings at Tax Time
Can I still claim the 30% federal solar tax credit if I installed my system in 2024 or 2025?
Yes. If your system started running on or before December 31, 2025, you can claim the credit on that year's tax return. If the credit is more than the taxes you owe, you can roll the rest over to future years.
What IRS form do I need to claim solar credits?
Use IRS Form 5695. An accountant can fill this out, or you can find it in most tax software.
Is there an income limit to claim the solar tax credit?
No. But the credit is non-refundable, meaning it only brings your tax bill down to zero rather than giving you a refund check. You can roll over any leftover credit to the next year.
Do solar water heaters and geothermal heat pumps qualify?
Yes. The credit also covers batteries, fuel cells, solar water heaters, and geothermal heat pumps, not just roof panels.
What about policy changes in the future?
Solar policies change often. Talk to a tax professional before buying so you know the current rules. We track these programs and can help you look at the numbers before you decide.
