The short answer: For systems placed in service in 2024, both homeowners and businesses can claim a federal tax credit worth 30% of eligible solar installation costs. The residential credit (Section 25D) is a dollar-for-dollar reduction of your federal income tax. The commercial credit (Section 48) works the same way, but businesses can stack it with accelerated depreciation, which can push the real value of the credit significantly higher. Neither credit is a cash refund. If your tax liability is lower than the credit amount, you carry the remainder forward to future years. Businesses can also carry it back one year.
What “30% Back” Actually Means for 2024
When someone says you get “30% back” from a solar tax credit, they mean a nonrefundable tax credit equal to 30% of your qualified costs. It reduces the tax you owe, line by line, on your federal return. It does not arrive as a check, and it does not reduce your taxable income the way a deduction does.
Here is the practical consequence. If you install a $25,000 residential solar system in 2024, your potential credit is $7,500. If your total federal income tax liability for the year is $6,000, you use $6,000 of the credit to erase your tax bill and carry the remaining $1,500 forward to 2025. You do not get $1,500 back as a refund. You get $1,500 in credit waiting for the next year you owe taxes.
This distinction matters enormously because solar salespeople sometimes present the credit as a guaranteed rebate. The Consumer Financial Protection Bureau has flagged this exact issue, noting that solar loan marketing frequently deducts the presumed credit from the loan amount to show a “net cost” that assumes the buyer will receive the full credit—even when their tax liability may not allow it.
Residential vs. Commercial: The 2024 Side-by-Side
The two credits share the same headline percentage but operate under different rules. The table below compares the key features for systems placed in service in 2024.
| Feature | Residential (Section 25D) | Commercial (Section 48) |
|---|---|---|
| Credit rate for 2024 | 30% of qualified costs | 30% (if prevailing wage and apprenticeship rules are met); otherwise 6% |
| Who claims it | Individual taxpayer who owns and lives in the home | Business or entity that owns the system |
| Eligible property | Primary residence or second home in the U.S.; new or existing construction | Commercial or industrial property; solar plus battery storage |
| Annual or lifetime cap | No cap | No cap |
| Carryforward | Yes, until 2034 | Yes, generally 20 years; also 1-year carryback |
| Depreciation stacking | No | Yes — MACRS plus 60% bonus depreciation in 2024 |
| Bonus adders | No | Yes — domestic content and energy community bonuses |
The Residential Credit: What Homeowners Actually Get
The Residential Clean Energy Credit under Section 25D is the one most homeowners mean when they talk about the “solar tax credit.” It was enhanced by the Inflation Reduction Act and sits at 30% for systems placed in service from 2022 through 2032.
What costs count toward the 30%
The credit applies to the full installed cost of the system, not just the panels. Qualified expenses include:
- Solar panels and the racking that holds them
- Inverters
- Wiring and electrical components
- On-site preparation, assembly, and installation labor
- Permitting and inspection fees
- Battery storage with a capacity of at least 3 kilowatt-hours
- Sales tax paid on eligible equipment
Labor costs for on-site preparation, assembly, and original installation qualify. Traditional roofing components do not—unless they are solar shingles or tiles that actually generate electricity.
What does not qualify
- Used (previously owned) equipment
- Leased systems or systems under a power purchase agreement — the system owner claims the credit, not the homeowner
- Rental properties you do not live in
- Roof repairs or structural work that does not generate energy
The carryforward mechanism
If your credit exceeds your tax liability for 2024, the unused portion carries forward to 2025 and beyond. You can keep rolling it forward until 2034. This is a meaningful advantage over some other home energy credits, which are not carryforward-eligible at all.
To claim the residential credit, you file Form 5695, Residential Energy Credits, with your 2024 return. The form walks through the calculation and the carryforward amount.
The Commercial Credit: Where Depreciation Changes the Math
Businesses claim the Investment Tax Credit under Section 48. For 2024, the base credit is 6% unless the project meets prevailing wage and apprenticeship requirements, in which case it rises to 30%.
The more significant difference is what happens after the credit. A business that owns a solar system can also depreciate it. In 2024, that means Modified Accelerated Cost Recovery System (MACRS) depreciation plus 60% bonus depreciation on the eligible basis.
How the stacking works in practice
Here is a simplified example. A business installs a $100,000 solar system and meets the prevailing wage rules, earning the 30% ITC. That is a $30,000 credit. The remaining $70,000 basis can be depreciated. With 60% bonus depreciation in 2024, the business can deduct $42,000 immediately, then depreciate the remaining $28,000 over the MACRS schedule. The tax savings from depreciation depend on the business’s effective tax rate, but the combined effect of the credit and depreciation is often substantially larger than the credit alone.
The key point: The commercial credit is not just a bigger version of the residential credit. It is a different financial instrument because of depreciation stacking and the ability to carry the credit back one year.
Bonus adders for commercial projects
The Inflation Reduction Act added two bonus credits that can increase the commercial ITC beyond 30% for projects that qualify:
- Domestic content bonus — additional credit if a certain percentage of steel, iron, and manufactured components are produced in the United States.
- Energy community bonus — additional credit if the project is located in a community with a history of fossil fuel employment or a closed coal mine or plant.
These adders do not apply to the residential credit. They are a commercial-only advantage, and they require documentation that not every project will be able to satisfy.
How to Claim the 2024 Credit
For homeowners
- Confirm the system was placed in service in 2024. “Placed in service” means it is installed, operational, and generating electricity. A system still under construction does not qualify for the 2024 credit.
- Gather your documentation. You do not file receipts with your return, but the IRS recommends keeping purchase records and installation documentation in case of audit.
- File Form 5695 with your 2024 return. The form calculates the credit and the carryforward amount.
- Check your tax liability. If the credit exceeds what you owe, the unused portion goes on line 16 of Form 5695 and carries to the next year.
For businesses
Commercial projects require more careful tracking. You will need documentation of the placed-in-service date, the eligible basis, compliance with prevailing wage and apprenticeship rules if you are claiming the 30% rate, and any bonus adder qualifications. The credit is claimed on the business’s tax return, and the depreciation calculation happens separately. Because the interaction between the credit, bonus depreciation, and state incentives can be complex, a tax professional familiar with energy credits is worth the cost for most commercial installations.
Common Mistakes That Cost People Money
- Treating the credit as a rebate. It is nonrefundable. If you owe $4,000 in federal tax and your credit is $7,500, you do not get $3,500 back. You carry it forward.
- Assuming everyone qualifies for the full credit. Retirees with low tax liability, people with significant deductions, and others who owe little in federal income tax may not be able to use the credit in the first year.
- Financing based on the full credit. Some solar loans are structured with the expectation that you will prepay a large share of the principal using the tax credit. If your credit is smaller than expected, your monthly payment can jump.
- Claiming the credit for a leased system. If you lease panels or sign a power purchase agreement, the system owner takes the credit, not you.
- Missing the placed-in-service deadline. A system installed in late December but not operational until January belongs to the following tax year.
- Forgetting to carry forward. The carryforward is automatic if you complete Form 5695 correctly, but you must file the form and keep the documentation. Skipping it means losing the credit entirely.
State Incentives: The Layer Most People Miss
Federal credits are only part of the picture. Many states offer additional tax credits, rebates, or exemptions that can reduce the net cost further. Massachusetts, for example, offers a state credit equal to 15% of system cost (less federal credits and rebates), capped at $1,000. Other states offer sales tax exemptions, property tax exemptions, or net metering policies that affect the economics of a system.
State incentives vary widely and change more frequently than federal credits. The federal credit does not phase down until 2033, but state programs can be capped, exhausted, or redesigned in any given year. If you are comparing quotes, ask each installer to show the state incentives separately and confirm whether they are still funded.
What the Credit Does Not Do
It does not reduce your taxable income. It is a credit, not a deduction. It does not apply to leased systems. It does not apply to rental properties you do not live in. It does not cover used equipment. And it does not generate a refund if you owe less than the credit amount.
For businesses, the credit does not automatically mean a 30% return on the project. The actual value depends on your tax liability, your ability to use depreciation, and whether you qualify for bonus adders. A commercial project that earns the 6% base credit instead of the 30% credit has a very different payback profile.
Frequently Asked Questions
Can I claim the solar tax credit if I owe no federal taxes?
You can claim it, but you cannot use it in a year when you owe nothing. The credit is nonrefundable. The unused amount carries forward to future years when you do owe federal income tax. For residential systems, you can carry it forward until 2034.
Does the 2024 credit apply to battery storage?
Yes. For residential systems, battery storage with a capacity of at least 3 kilowatt-hours qualifies. For commercial systems, storage is eligible under Section 48 as part of the energy property. The battery does not have to be paired with solar to qualify.
Can I claim the credit for a second home?
Yes, for residential systems. Section 25D applies to a dwelling unit used as a residence by the taxpayer, which can include a second home. It does not apply to rental properties you do not live in.
What happens to the credit if I sell my house?
The credit is tied to the tax year the system was placed in service, not to how long you own the home. If you claimed it in 2024 and sell in 2025, the credit you already used is not recaptured. Any unused carryforward, however, remains with you, not the buyer.
Is the commercial credit better than the residential credit?
They serve different taxpayers. For a business with taxable income and the ability to use depreciation, the commercial credit plus MACRS can produce a larger total benefit. For a homeowner, the residential credit is the relevant tool. The “better” option depends entirely on whether you are filing as an individual or a business and on your tax situation.
The Bottom Line
The 2024 solar tax credit gives both homeowners and businesses a 30% credit on eligible costs. The residential credit is simpler: file Form 5695, claim 30% of your installed cost, carry forward anything you cannot use. The commercial credit is more complex but potentially more valuable because it stacks with accelerated depreciation and can reach higher percentages through bonus adders.
What you actually get back depends less on the credit rate and more on your tax liability, your ownership structure, and whether you can use the credit in the year you claim it. If you are considering solar in 2024 or early 2025, the most useful thing you can do before signing a contract is to estimate your federal tax liability for the year and confirm how much of the credit you will actually be able to use. That number, not the 30% headline, is what determines your real return.
If you want to compare specific system quotes or estimate your carryforward, the U.S. Department of Energy’s homeowner guide and the IRS Form 5695 instructions are the most reliable starting points. For commercial projects, the IRS guidance on prevailing wage and apprenticeship requirements is essential reading before you assume the 30% rate applies.