Residential Clean Energy Credit (25D): The Guide

A $30,000 solar installation gets you a $9,000 tax credit. Spend $50,000 on geothermal and $15,000 comes back. There is no dollar cap on the Residential Clean Energy Credit, and that single fact separates it from every other home energy incentive in the tax code. Section 25D takes 30% of whatever you spent and hands it back, however large the project.

Its sibling credit, the Energy Efficient Home Improvement Credit, caps you at a few hundred dollars per item. Different design, different rules, and people mix them up constantly. This guide covers 25D on its own: what equipment qualifies, what counts in the cost basis, how the carryover works, and the changes OBBB brought in for 2025.

What qualifies for the residential clean energy credit

Five categories of equipment, all of them systems that generate or store clean energy rather than reduce how much you use.

Solar panels. The big one. Rooftop or ground-mount, on your main home or a second home you actually use. Solar shingles and solar roofing tiles qualify too, since they generate power, which makes them the one roof product with a real credit behind it.

Battery storage. Any battery of 3 kWh or more. Until recently a battery needed solar attached to qualify. Under the OBBB rules, a standalone battery installed in 2025 or later earns the credit on its own, no panels required.

Geothermal heat pumps. Ground-source systems that heat and cool through buried loops. Since 2025, expanding an existing loop field qualifies as well, where before only complete systems made the cut.

Small wind turbines. Rare in practice. If your property supports one, it qualifies the same way solar does.

Fuel cells. The odd member of the family, with its own sub-rules: $500 per half-kilowatt of capacity, main home only. Almost nobody claims these, and if you’re evaluating one you already know more about fuel cells than I do.

Why 25D is the generous credit

Four design choices make this credit worth planning around.

No annual or lifetime cap. The 30% applies to the full project cost, whether that’s $8,000 or $80,000.

Income doesn’t matter either. High earners qualify. So do modest earners, and since 2025 there’s a 10% bonus rate for solar installed in certain low-income census tracts, taking those projects to 40%.

Unused credit carries forward. You need tax liability to use the credit, but whatever you can’t absorb this year rolls into next year, and the year after. Compare 25C, where the leftover simply disappears. A retiree with $3,000 of annual tax liability can still work through a $9,000 solar credit over three filings.

Second homes qualify. A cabin you use in summer counts. A property you rent to others does not, and we cover the landlord rules separately in the rental property guide.

New construction is fine too. Build a house with solar on the roof and you claim the credit, which surprises people who’ve heard that new builds are excluded. That exclusion belongs to 25C, the other credit, and builders get their own incentive through the 45L credit.

What costs count toward the 30% credit

The 30% applies to the whole installed cost, and for 25D that phrase is broad. Panels, inverters, racking, wiring, the battery, permitting fees, inspection costs, sales tax, and the labor to design and install all of it. If the crew had to reinforce a section of roof to carry the panels, that structural work generally counts too.

What doesn’t count: a full reroof done at the same time, tree removal to clear shade, and any portion covered by a rebate that came from federal money. State and utility rebates leave your basis alone, a point OBBB settled explicitly. The OBBB FAQ has the rebate interaction table.

Run the numbers on a real quote. A $28,400 solar-plus-battery contract in Texas breaks down as maybe $24,900 of qualifying cost after the installer’s referral discount and a $1,200 municipal rebate that, being city money, changes nothing federally. Credit: $7,470.

Leased solar vs. owned: who gets the credit

You have to own the system. Buy it outright or finance it with a loan and the credit is yours. Sign a lease or a power purchase agreement and the credit belongs to the leasing company, which is precisely why leasing companies can offer the monthly rates they do.

Since 2025, leased-system sellers have to disclose the lifetime tax benefit they’re keeping. Read that disclosure before signing anything. On a typical 20-year lease the company’s captured credit plus depreciation often exceeds $10,000, and a loan-financed purchase would have routed that money to you.

Claiming it: Form 5695 and the credit limit worksheet

The credit goes on Part I of Form 5695, filed with your return for the year the system was placed in service. Installed and switched on, in other words. A December contract with a February commissioning belongs to the February tax year.

Keep the contract, proof of payment, and the manufacturer certifications with your records. If your credit exceeds this year’s liability, the form computes the carryforward automatically, and next year you enter that number on the same form. People forget their own carryovers more often than you’d think. Check last year’s Form 5695, line 16, before assuming you start from zero.

Frequently asked questions

Is the credit refundable?

No. It can take your tax bill to zero but the IRS won’t cut you a check beyond that. The carryforward softens this considerably, since unused credit waits for future years rather than expiring. Full breakdown in our refundability guide.

How long can I carry unused credit forward?

Through 2034 under current law. In practice most filers absorb even a large credit within two or three years.

Does a roof replacement under new solar panels qualify?

The reroof itself, no. Solar shingles that are the roof, yes. Structural reinforcement specifically needed for the panels, generally yes. Three different answers on one invoice, so ask your installer to itemize.

My HOA or condo shares a solar system. Can I claim anything?

Yes, your proportionate share of the cost, if you own part of the system through the association. The paperwork burden is real. Get the allocation in writing from the HOA.

When does the credit end?

The 30% rate runs through 2032, then steps down. Deadlines for every energy credit, including this one, live in our expiration guide.

Where to start

Get two or three itemized quotes, check whether your census tract qualifies for the 10% low-income solar bonus, and confirm your tax liability can absorb the credit on a schedule you’re happy with. Then put your numbers through the OBBB calculator alongside any 25C work you’re planning, since the two credits stack in the same filing year without touching each other’s limits.