How the Federal Tax Credit Works

concept of a home battery energy storage system located in the garage of a modern family house in a futuristic blue light illuminating the evening atmosphere of a quiet street. 3d rendering.

— As of August 2025

For an overview of modifications to the residential Clean Energy Tax Credit known as IRS tax code 25D visit the FAQs for Public Law 119-21, 139 Stat. 72 (July 4, 2025) and associated guidance Internal Revenue Bulletin.

Disclaimer: This article provides an overview of federal tax incentives for residential solar and battery storage (photovoltaics or PV). We’re not tax professionals, and this article does not constitute professional tax advice. It should not be used as the only source of information when making decisions related to residential solar and battery storage credit tax filing. Consult a tax professional to determine what makes sense for you.

For many homeowners, going solar is a great opportunity to save on monthly energy bills and reduce your dependence on your utility company. The federal tax credit for going solar can make this investment an even more attractive option.

A tax credit is a reduction in the amount of taxes you owe, according to the IRS. And solar and battery storage installations often qualify for the residential clean energy credit.

As of August 2025, the 30% residential Clean Energy Tax Credit previously available for owned solar systems (vs. lease or PPA) through IRS tax code 25D, will not be allowed for any expenditures made after December 31, 2025. It is Important to note that you must install your solar project before December 31, 2025. A solar project's final stage of interconnectivity with your local utility, also called Permission to Operate (PTO) can possibly follow in 2026 but to be certain, you should try to achieve PTO before December 31, 2025. Detailed information available on EnergySage but always consult your tax advisor when making decisions related to clean energy tax credits.

Tax Credit Eligibility

According to the U.S. Department of Energy, to qualify for the solar federal tax credit, you must meet all of the following requirements:

  • You must own your home (renters are excluded, unfortunately).
  • The solar panel system must be new or is being used for the first time.
  • You must own your solar panels.

This last point isn’t quite as obvious as it might seem, since some homeowners choose to lease their solar systems through third-party companies. While leasing may make sense in some situations, it means that the leasing company gets to claim the tax credit instead of you. By contrast, homeowners that buy their solar system outright or finance the system with a loan may get to claim the tax credit.

How Do I Claim the Tax Credit?

To claim the tax credit, you must file IRS Form 5695 as part of your tax return. You'll calculate the credit on the form, and then enter the result on your individual tax Form 1040.

If in last year’s taxes, you ended up with a bigger credit than you had income tax due, you can’t get money back from the IRS. Instead, you can generally carry the credit over to the next tax year. It’s important to understand that this is a tax credit and not a rebate or deduction. Tax credits offset the balance of tax due to the government (therefore, if you have no tax liability, there is nothing to offset and you can’t take advantage of it).

If you failed to claim the credit in a previous year, not to worry! You can file an amended return.

How Do I Use the Tax Credit to Pay Down My Loan?

Many solar loan programs are built to be flexible, simple and affordable — and, in the case of Mosaic CHOICE loans**, the monthly payments are specifically structured with the federal tax credit in mind. You have the ability to keep your monthly payment the same by using your federal tax credit — or your own savings. Here’s how it works:

Mosaic’s CHOICE loan product is structured with the federal tax credit in mind, with lower monthly payments you can lock in by applying the full amount of your credit. Here’s how it works:

  • If you make the 30% voluntary CHOICE prepayment before the end of month 18, your monthly payments will remain the same.
  • If you make more than the 30% voluntary CHOICE prepayment before the end of month 18, our monthly payment will go down.
  • If you make less than the 30% voluntary CHOICE prepayment before the end of month 18, your monthly payments will go up.

It’s your CHOICE!

Mosaic’s PLUS loan product** — which can be used to finance other home improvements, in addition to solar and batteries — has monthly payments that do not assume the use of the federal tax credit. However, if you opt to use either the tax credit or personal savings to make voluntary prepayments to reduce your loan principal in the first 18 months, your monthly payments may be reduced for the remainder of the loan term. However, if you choose to not make any prepayments, your monthly payments will not increase.

In both the CHOICE and PLUS products, your decision of how much or whether to pay down will not change your interest rate, and there are never any prepayment penalties with a Mosaic loan.

We highly recommend that you consult a tax advisor about your personal federal tax credit eligibility to determine if you can take advantage of the tax credit and apply it to your loan. For non-tax related questions, we also have a wonderful customer support team by phone at (866) 493-6367 or email loanservicing@joinmosaic.com waiting to answer any additional questions you may have.

* Availability of Federal & State Tax Credits is dependent on your unique financial situation. Please consult a tax professional regarding your eligibility.
** Mosaic CHOICE and PLUS loan products are no longer available as of June 6, 2025.