Renewable Energy Tax Credits

Want to make your home or business cleaner and lower your costs? Renewable energy tax credits are government incentives that encourage people and organizations to install clean energy systems. These credits lower the taxes you owe, which helps with the upfront price of solar panels, wind turbines, geothermal systems, battery storage, and more. By cutting part of your costs, these credits help more people choose renewable energy, which is good for your budget and the environment. Below is how these credits work and how to use them.

What Are Renewable Energy Tax Credits?

These are financial incentives from federal, state, and sometimes local governments to support clean energy use and generation. A tax credit directly cuts your tax bill, not your taxable income. That difference can mean big savings and makes clean energy projects easier to afford.

How Do Renewable Energy Tax Credits Work?

Tax credits reduce your taxes dollar for dollar. If you install eligible clean energy property or make qualified energy-saving upgrades, you can claim a percentage of those costs on your tax return. For many homes, the Residential Clean Energy Credit is 30% of the cost of new, qualified clean energy property. These credits are usually nonrefundable, so the credit cannot be larger than your tax bill. A helpful feature of some credits, like the Residential Clean Energy Credit, is that any unused amount can often carry forward to future years so you still get the full value over time.

For businesses, the Investment Tax Credit (ITC) and Production Tax Credit (PTC) offer strong incentives. The ITC is often a percentage of the project’s cost, while the PTC gives a per-kilowatt-hour credit for electricity produced. Rates and rules differ by credit and technology.

Which Technologies Qualify for Tax Credits?

Many technologies qualify, reflecting a broad push for clean energy. For homes, eligible property includes:

• Solar electric panels
• Solar water heaters (with approved certification)
• Wind turbines
• Geothermal heat pumps (meeting ENERGY STAR at purchase time)
• Battery storage of at least 3 kWh (starting in 2023)

Keep in mind these credits usually apply to new installations. Used equipment generally does not qualify. For businesses and industry, eligible projects can include large solar and wind sites and certain biomass and fuel cell systems.

What Types of Renewable Energy Tax Credits Are Available?

Several key federal credits support clean energy for both individuals and businesses. They cover many technologies and situations.

Residential Clean Energy Credit

The Section 25D credit lets homeowners claim 30% of the cost of new, qualified clean energy property installed from 2022 through 2032. The rate drops to 26% in 2033 and 22% in 2034. There are no annual or lifetime dollar caps for most items, except fuel cells, which have a set limit. This credit is nonrefundable, but you can carry forward any extra amount. It applies to your main U.S. home (owned or rented). It can also apply to a second home you use part-time and do not rent out (fuel cells excluded for second homes).

Energy Efficient Home Improvement Credit

The Section 25C credit supports upgrades that cut energy use in existing homes. Expanded by the Inflation Reduction Act (IRA), it gives 30% of total qualified costs, up to $1,200 per year for most items. For high-efficiency heat pumps, biomass stoves, and boilers, a separate $2,000 yearly limit applies. Combined, you can save up to $3,200 per year. Eligible items include insulation, windows, doors, and certain water heaters, furnaces, and central AC. Extra credit you cannot use this year does not carry forward.

Investment Tax Credit (ITC)

The ITC is a main federal tool for business and large projects, especially solar. It provides a credit equal to a share of qualified costs. The IRA kept the 30% rate for 2022-2032, then it drops to 26% in 2033 and 22% in 2034, ending in 2035. The ITC helps lower large upfront costs. The IRA also added labor rules (prevailing wages and apprenticeships) to qualify for the higher rates.

Production Tax Credit (PTC)

The PTC mainly supports utility-scale wind, but also applies to other resources like geothermal and biomass. Instead of cost, it pays per kWh of electricity generated for 10 years after the system starts running. Projects over 1 MW can get a higher rate if they meet wage and apprenticeship rules under the IRA. Non-taxable groups (like local governments and nonprofits) can use a direct pay option to get the value in cash.

Who Is Eligible for Renewable Energy Tax Credits?

Eligibility depends on the credit and project type, but the programs are broad so many people and organizations can benefit.

Homeowners and Renters

Homeowners, and sometimes renters, can use residential credits. Section 25D applies to your main U.S. home (owned or rented). It can also apply to a second home you use part-time and do not rent out (fuel cells excluded). Section 25C mainly targets homeowners improving their primary residence, but renters may claim certain items like central AC, heat pumps, and water heaters. Landlords and other owners who do not live in the home generally cannot claim residential credits.

Businesses and Commercial Properties

Businesses and commercial property owners can claim larger credits like the ITC and PTC for major investments, such as rooftop solar on offices or wind farms. The IRA also expanded the energy-efficient commercial building deduction. Some projects must meet size, technology, and labor rules (prevailing wages and apprenticeships) to get full benefits.

Nonprofit and Government Entities

Because these groups do not owe income tax, they could not use tax credits before. The IRA created a new “direct pay” option for certain credits, letting qualified tax-exempt entities receive a payment from the IRS instead. This is especially useful for the PTC and applies to equipment placed in service on or after January 1, 2023, and before January 1, 2033. This change opens federal clean energy benefits to more public and charitable organizations.

What Expenses Qualify for Renewable Energy Tax Credits?

Knowing which costs count helps you save the most. The IRS sets rules on what you can include in your total cost.

Solar Panel Systems and Equipment

Home solar electric systems and solar water heaters qualify for the Residential Clean Energy Credit. Costs can include the panels or heater and needed equipment. Solar water heaters must be certified by the Solar Rating Certification Corporation or a similar body. Remember: solar roofing tiles and solar shingles that produce power qualify, but standard roofing that only protects your roof does not.

Wind Energy Installations

Small residential wind systems and large commercial wind projects qualify. For homes, the cost of a small wind turbine can count toward the Residential Clean Energy Credit. For businesses, utility-scale wind is a main user of the PTC. Eligible costs usually include the turbine, mounting, inverters, wiring, and related electrical parts.

Geothermal, Biomass, and Fuel Cell Technology

Geothermal heat pumps qualify for both residential and commercial credits. For homes, they must meet ENERGY STAR at the time of purchase. Biomass stoves and boilers qualify for the 25C credit, often up to the higher $2,000 yearly limit. Fuel cell property can qualify for the Residential Clean Energy Credit but has special capacity-based limits. Costs can include equipment and installation labor.

Energy Storage and Battery Systems

Residential battery storage systems of at least 3 kWh capacity qualify for the Residential Clean Energy Credit starting in 2023. If you install a battery to store solar or other clean energy, part of that cost can be claimed. This supports energy independence and a more reliable home setup.

Costs for Installation and Labor

Many credits include installation labor, such as site prep, assembly, original installation, and piping or wiring needed to connect the system to your home or property. This means your project cost often includes more than just the equipment. Be sure to separate eligible labor from ineligible items like loan interest when figuring your credit.

What Are the Limits and Caps on Renewable Energy Tax Credits?

These credits can be generous, but different limits and caps apply. Knowing them helps you plan and follow IRS rules.

Annual Limits for Residential Taxpayers

The Residential Clean Energy Credit (25D) usually has no annual or lifetime dollar limit for most items like solar, wind, and geothermal. An exception is fuel cells, capped at $500 for each half kilowatt of capacity. If more than one person lives in the home, the total fuel cell credit cannot be more than $1,667 for each half kilowatt of capacity.

The Energy Efficient Home Improvement Credit (25C) has yearly caps. It gives 30% of costs, with a general annual cap of $1,200 for most upgrades (insulation, windows, doors). A separate $2,000 yearly cap applies to heat pumps, biomass stoves, and boilers. These caps reset each year, so you can spread projects across years to use the full amount more than once.

Credit Caps for Specific Technologies

Some items have their own caps. For 25D, fuel cells have the $500 per half kW limit. For 25C, while the annual total is $1,200 for most items, there are item caps too:

• Windows and skylights: up to $600 (or 30% of product cost)
• Exterior doors: $250 per door, up to $500 total per year
• Heat pumps, biomass stoves, and boilers: up to $2,000 per year

Carryforward and Carryback Provisions

The Residential Clean Energy Credit is nonrefundable, but extra credit can carry forward to later years if it exceeds your tax bill. This helps you use the full value over time. The Energy Efficient Home Improvement Credit does not carry forward. These differences can affect your project timing and planning.

How Have Recent Laws Impacted Renewable Energy Tax Credits?

Recent laws, especially the Inflation Reduction Act of 2022, reshaped clean energy credits. They extended existing credits and added new rules to speed up the move to cleaner energy.

Inflation Reduction Act (IRA) Changes

The IRA is a major climate law with the biggest U.S. investment to cut emissions. It extended and expanded many incentives. Highlights include:

• Residential Clean Energy Credit (25D) extended through 2034 with a 30% rate through 2032, then a phase-down. Battery storage became eligible in 2023.
• ITC extended at 30% through 2032, then phased down in 2033 and 2034.
• Energy Efficient Home Improvement Credit (25C) broadened, with higher annual limits and more eligible items.
• New labor standards (prevailing wages and apprenticeships) for higher ITC/PTC rates.
• Direct pay option for some non-taxable entities.

These changes are expected to cut U.S. greenhouse gas emissions by about 40% and support progress to net-zero no later than 2050.

Section 48C Advanced Energy Project Credit

The IRA revived and expanded Section 48C, first set up by the 2009 ARRA. It added $10 billion to this competitive credit for advanced energy manufacturing facilities (not energy generation). The credit can be up to 30% of qualified manufacturing investments. Companies must apply to the IRS for certification to get an allocation. Labor rules apply here too. The IRS set the award process by February 12, 2023, and certified facilities have two years to place projects in service.

Upcoming Changes in Credit Requirements

As of September 23, 2025, credit percentages for both the Residential Clean Energy Credit and the ITC will start phasing down in 2033. The IRS is also releasing ongoing guidance on labor rules and the direct pay option. For installations in 2025, manufacturers must provide a Qualified Manufacturer (QM) four-digit code for each eligible 25C product. Include the QM code on your return for:

• Heat pumps
• Water heaters
• Central air conditioners
• Boilers and furnaces
• Biomass stoves
• Windows, doors, and skylights

Check IRS and ENERGY STAR updates so you follow the latest rules and get full benefits.

How to Claim Renewable Energy Tax Credits

Claiming these credits may feel like a lot, but with the right forms and records, the steps are clear. Know what documents you need and follow the filing process for your situation.

Required Documentation and Forms

For most residential credits, file Form 5695 (Residential Energy Credits) with your federal return. This covers both the Residential Clean Energy Credit (25D) and the Energy Efficient Home Improvement Credit (25C). Starting in 2025, include the manufacturer’s four-digit QM code for eligible 25C products installed in 2025. Keep receipts for equipment and installation. If claiming clean vehicle credits, use Form 8936 and include the vehicle’s VIN.

Claim Process for Individuals vs. Businesses

Individuals use Form 5695 with their personal return. It calculates the credit based on your costs and applies it to your tax bill. Businesses use their own tax forms for credits like the ITC and PTC and may face added steps, such as meeting wage and apprenticeship rules. Non-taxable entities can use direct pay for certain credits to receive a cash payment from the IRS instead of a tax offset.

Deadlines and Filing Tips

Claim the credit for the year the property is installed, not just purchased. For example, if installation finishes in 2025, claim it on your 2025 return (typically filed in 2026). Follow current IRS instructions, complete all forms, and keep detailed records. A tax professional can help with complex projects, business claims, and combining state or local incentives with federal credits.

How to Maximize Savings from Renewable Energy Tax Credits

A simple plan can help you get the most value. Combine incentives when possible and time your projects to fit yearly limits and phase-down schedules.

Combining Tax Credits and Rebates

Use federal credits along with state, local, and utility rebates. Credits cut your tax bill; rebates usually reduce your upfront price or send you a payment. When figuring your federal credit, you may need to subtract certain subsidies that lower your purchase price. Common adjustments:

• Public utility subsidies for buying or installing clean energy equipment are subtracted.
• Rebates tied to product cost and paid by the seller, installer, or manufacturer are subtracted.
• Payments for energy you sell back to the grid (like net metering credits) usually are not subtracted.

Check each program’s rules so you calculate your federal credit correctly.

Timing Energy Upgrades for Maximum Benefit

Timing matters, especially for 25C annual caps. You might spread projects across years to use the full $1,200 for items like insulation and windows one year, then claim up to $2,000 for a heat pump the next year. For the Residential Clean Energy Credit, there are no annual caps for most items and you can carry forward extra credit, but local rebates and state credits may have yearly limits. Also, plan around the 2033 phase-down dates while rates are still at 30%.

Coordinating with State and Local Incentives

Many states, cities, and utilities offer extra help, including tax credits, rebates, grants, or low-interest loans. Look up programs using U.S. Department of Energy tools and state databases. By stacking federal, state, and utility offers, you can bring down your net cost and speed up payback.

Frequently Asked Questions about Renewable Energy Tax Credits

Tax credits can be confusing. These answers cover common questions.

Can You Claim Credits for Rental Properties?

For residential clean energy credits, landlords and owners who do not live in the home generally cannot claim them. The 25D credit applies to your main home (or sometimes a second home you use part-time and do not rent out). If a property is only for business, you cannot claim the residential credit. If you use part of your home for business, and that business use is 20% or less, you can usually claim the full credit. If business use is more than 20%, claim the portion for personal use. For 25C, renters may claim certain systems (like central AC, heat pumps, or water heaters) they buy, but exterior items like windows and insulation usually require home ownership of a primary residence.

Do Credits Apply to New Construction?

It depends. The Residential Clean Energy Credit applies to new and existing U.S. homes. If you add solar to a newly built home, you can claim it. The Energy Efficient Home Improvement Credit generally applies to improvements to an existing home, not a brand-new one. Check IRS rules for each credit before you build.

Are Subsidies or Rebates Taxable?

When figuring your tax credit amount, you may need to subtract certain subsidies or rebates because they reduce your purchase price. This includes public utility subsidies paid to you or your contractor. Rebates are also subtracted if they are based on cost, paid by someone connected to the sale (like the seller or manufacturer), and are not payment for services you performed. Utility payments for power you send back to the grid (net metering) usually do not change your qualified costs. Many state incentives are not subtracted unless they meet the federal rules for a rebate or purchase-price adjustment. Some incentives that do not count as federal rebates may be included in your taxable income. A tax professional can review your specific case.

Resources for More Information on Renewable Energy Tax Credits

Clear, current info helps you get the most value from these credits. Several reliable sources can help.

Trusted Government Sources and IRS Guidance

Start with the IRS website for official rules, eligibility, and forms. Look for pages on the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit, plus FAQs. Key forms include Form 5695 (Residential Energy Credits) and Form 8936 (Clean Vehicle Credit). The IRS also posts publications and guidance related to the Inflation Reduction Act. You can call the IRS Public Information line or check the site for updates.

Nonprofit and Industry Resource Centers

ENERGY STAR (from the EPA and DOE) offers details on federal energy efficiency credits, qualifying products, and money-saving tips. Industry and tax advisory groups focused on clean energy also share updates, especially for commercial and utility-scale projects. For personal advice based on your situation, talk with a qualified tax professional or financial advisor.