Solar tax credit carryforward lets you apply an unused federal Residential Clean Energy Credit (Section 25D) from a 2025-or-earlier solar installation to future tax years. The credit is nonrefundable, so if it exceeds what you owe the IRS in the year your system was placed in service, the leftover amount carries forward — and the 2025 repeal of the credit did not change that carryforward right.
Important 2026 update: the Residential Clean Energy Credit was 30% for systems placed in service from 2022 through December 31, 2025, and is not available for any system placed in service after that date. The One Big Beautiful Bill Act ended it with no step-down. So carryforward now matters only if you earned the credit on a 2025-or-earlier install — there is no new federal credit for a cash or loan purchase in 2026. For the full picture, see our guide to the 2026 federal solar tax credit.
What Is Solar Tax Credit Carryforward?
A tax credit only reduces what you owe the IRS; it doesn’t create a refund if your liability is lower than the credit. The Residential Clean Energy Credit is nonrefundable, which means it can take your federal tax bill down to zero, but the IRS won’t cut you a check for anything beyond that.
That’s where carryforward matters. Rather than losing unused credit dollars, the IRS lets you carry the remaining balance forward into later tax years until it’s fully used. For example, if a 2025 installation earned a $9,000 credit but you only owed $4,000 in federal tax that year, the remaining $5,000 carries to your next return.
How the Residential Clean Energy Credit Worked
According to the IRS Residential Clean Energy Credit page, the credit equaled 30% of the cost of qualifying clean energy property installed at your home anytime from 2022 through December 31, 2025. It was originally scheduled under the Inflation Reduction Act to run for several more years before stepping down, but the One Big Beautiful Bill Act (signed July 4, 2025) accelerated the end date: the credit is not available for any property placed in service after December 31, 2025, and there is no phase-down — it ended outright.
Here’s how the credit calculation worked for a qualifying installation:
- Total eligible system cost: panels, inverters, mounting hardware, labor, battery storage, and related permitting fees (loan interest and origination fees are not eligible)
- Credit value: total eligible cost multiplied by 30%
- Applied credit: reduces your federal income tax dollar-for-dollar
- Carried-forward balance: any unused portion rolls to the next tax year
The credit is nonrefundable and, for solar, has no annual or lifetime dollar limit (a separate cap applies only to fuel-cell property). The carryforward provision is what lets a large credit eventually be used in full even when a single year’s tax bill is too small to absorb it.
When You Can’t Use Your Full Solar Credit
Several situations leave a 2025 installer with more credit than tax liability in the first year:
- Lower fixed income: households drawing primarily from Social Security or already-taxed savings often have modest federal liability
- A loss year: self-employed homeowners with a down year may owe little or nothing
- Large deductions: significant mortgage interest, charitable giving, or medical expenses can cut taxable income substantially
- High system cost: premium installs with battery backup can push the credit above $10,000–$15,000, exceeding a typical middle-income tax bill in one year
Can you carry forward unused solar tax credits to next year?
Yes. The IRS permits carryforward of unused Residential Clean Energy Credits under IRC Section 25D, and the 2025 repeal did not change those carryforward rules. You claim the original credit on IRS Form 5695 for the year your system was placed in service; the form calculates any unused balance, which transfers to the following year’s return. There is no special election or penalty — the process is built into the standard forms. One contrast worth knowing: the separate Section 25C credit (heat pumps, windows, insulation), which also ended December 31, 2025, does not allow carryforward, so any unused 25C amount is simply lost. Section 25D solar credit is different — it carries forward.
How long can solar tax credits be carried forward?
Under current law there is no year cap on carrying forward unused Section 25D credit — no five- or ten-year limit. You can roll the balance forward until it’s fully absorbed. The credit itself ended for new installations after December 31, 2025, which means that for most people a carryforward balance from a 2025 install will be the only Section 25D activity on future returns. Because the repeal is recent, it’s worth confirming with a tax professional how a multi-year carryforward applies to your specific returns. Keep your 2025 Form 5695 and installation paperwork on file for as long as you’re carrying a balance.
Carryforward vs. Carryback: Key Differences
Homeowners sometimes ask about carryback — applying this year’s credit to a prior year’s return for a refund of taxes already paid. Under the residential credit (IRC Section 25D), carryback is not permitted for individual homeowners. Carryback provisions apply to certain business energy credits under Section 48, not to the residential credit. For homeowners, the only direction is forward.
Step-by-Step: Using a Carryforward Balance
- Confirm your credit value: 30% of the eligible cost of a system placed in service by December 31, 2025
- Estimate your federal tax liability: review your return or projected withholding for the year
- File IRS Form 5695: complete the residential clean energy credit section for the installation year (2025)
- Record the carryforward balance: Form 5695 calculates the unused amount
- Apply it next year: carry the balance to the following year’s Form 5695
- Repeat annually: continue until the full credit is absorbed
Tax Planning Tips to Use Your Credit Faster
If you’re carrying a balance from a 2025 install, a few moves can help you absorb it sooner. These are general ideas, not tax advice — coordinate with your preparer:
- Match income to the balance: years with higher taxable income (for example, from selling appreciated assets) create more liability for the credit to offset
- Watch Alternative Minimum Tax: AMT can affect how nonrefundable credits apply in a given year
- Keep meticulous records: your 2025 Form 5695 is the source document for every future carryforward year
- Plan around your full picture: a tax professional can map how the balance interacts with your other credits and deductions
Common Mistakes to Avoid With Unused Credits
- Forgetting to carry the balance: leaving the prior-year amount off your next return is common — keep each year’s Form 5695
- Expecting a refund: the credit is nonrefundable; no portion comes back as a check beyond your tax owed
- Ignoring AMT interactions: verify your AMT exposure with a professional
- Underreporting eligible costs: battery storage and directly related electrical work and permitting fees count toward the original 2025 credit; loan interest does not
Estimate Your Credit and Carryforward
You don’t need a spreadsheet to estimate a 2025 credit value and how long a balance might take to use. Try our solar tax credit calculator to model the credit amount against your tax liability, then confirm the details with a tax professional before you file.
Frequently Asked Questions
Can you still get the federal solar tax credit in 2026?
Not for a new installation. The Residential Clean Energy Credit (Section 25D) ended for systems placed in service after December 31, 2025, so a cash or loan purchase in 2026 earns no federal credit. Only systems placed in service in 2025 or earlier qualify, and any unused portion of that credit carries forward. A solar lease or PPA is the one way a 2026 homeowner indirectly accesses a federal credit, because the system owner claims the commercial credit (Section 48E).
Can you carry forward unused solar tax credits to next year?
Yes. The IRS permits carryforward of unused Section 25D credit, and the 2025 repeal did not change the carryforward rules. You claim the credit on Form 5695 for the year your system was placed in service, and any unused balance transfers to the following year’s return automatically — no special election required.
How long can solar tax credits be carried forward?
There is no year cap. Unused Section 25D credit carries forward until it’s fully used. Because the credit ended for new installations after December 31, 2025, a carryforward balance from a 2025 install will typically be the only Section 25D activity on your future returns. Keep your 2025 Form 5695 and installation records for as long as you carry a balance.
This is general information, not tax advice. The Section 25D rules and the 2025 repeal can interact with your individual situation in ways a qualified tax professional should confirm before you file.
- TurboTax Home & Business — walks through Form 5695 and tracks an unused credit balance from year to year.
- Personal tax planning guide — useful background if you’re coordinating a multi-year carryforward with the rest of your return.
Related: Federal Solar Tax Credit in 2026: What Happened to the 30% Credit
Related: Solar Lease vs Loan vs Cash: Which Is Best in 2026?
Related: Solar Panel Cost in 2026: What You’ll Actually Pay and Save