How to Claim the Solar Tax Credit in California: Form 5695 and Rebates

To claim the solar tax credit in California, you file IRS Form 5695 with your federal return and take 30% of your qualified installation costs as a nonrefundable credit against your federal income tax. California has no separate state income tax credit for residential solar, so the federal credit under Internal Revenue Code Section 25D is the one that matters. One critical change: the credit ends for any system placed in service after December 31, 2025.¹ If your system went live in 2025 or earlier, or you have unused credit carrying forward from a prior installation, you can still claim it on the return you file in 2026.

Who Can Still Claim the Credit

Two situations keep the credit available to California homeowners filing in 2026:

Your system was placed in service by December 31, 2025. You claim the 30% credit on your 2025 federal return.
You installed solar between 2022 and 2025 and your credit was larger than your tax bill in the year you claimed it. The unused portion carries forward, and you claim it by filing a new Form 5695 with your current return.²

“Placed in service” is the pivotal date. A system is generally placed in service when installation is complete and it can generate electricity. In California that date usually aligns with the day your utility grants Permission to Operate (PTO). If panels were on the roof in December 2025 but PTO didn’t arrive until January 2026, you likely missed the cutoff. Pull your utility’s PTO notice before you file so you know which tax year applies.

You also have to own the system. Leased panels and power purchase agreements don’t qualify for the homeowner because the financing company owns the equipment and claims any credit itself. The home must be in the United States, and the equipment must be new.³

The credit applies to your main home and, in most cases, to a second home you live in part-time and don’t rent out. Fuel cell property is the exception; it qualifies only on a primary residence. Landlords who don’t live in the property can’t claim the credit at all.³ If you run a home office and business use exceeds 20% of the property, the credit is reduced proportionally to the residential share.

What Counts Toward the 30%

For systems placed in service from 2022 through 2025, the credit equals 30% of qualified costs with no dollar cap.³ A $50,000 system produces a $15,000 credit, assuming you have enough federal tax liability to absorb it.

Qualified property includes:

Solar electric panels, including solar roof tiles and shingles that actually generate electricity.
Solar water heaters, as long as at least half the home’s water heating energy comes from the sun.
Battery storage with at least 3 kilowatt-hours of capacity, eligible starting in 2023.
Small residential wind turbines and geothermal heat pumps.

Qualified costs include hardware, inverters, wiring, mounting equipment, installation labor, and permitting fees. California caps residential solar permit fees at $450 plus $15 per kilowatt above 15 kW, so permit fees are modest but still count.

Costs That Do Not Qualify

This is where homeowners most often inflate their credit and create problems if the IRS asks questions. The following are excluded:

Loan interest and loan origination fees on financing used to pay for the system.³
Standard roofing. Roof trusses and ordinary shingles that merely support the panels don’t qualify, even when installed in the same project. Solar shingles that generate electricity do qualify.
Unrelated home improvements bundled into the same invoice. Only the solar line items count, so your installer’s invoice should separate them clearly.

The roof point is worth repeating because installers sometimes present a full reroof as part of the solar cost. A reroof done to prepare the surface for panels is not a qualified solar expense. If an invoice blurs the two, ask for a revised line-item breakdown before you file.

How Rebates Change Your Number

If you received a rebate from your utility for installing solar, subtract the rebate from your system cost before applying the 30%.² A $2,000 utility rebate on a $20,000 system drops your eligible cost to $18,000 and your credit from $6,000 to $5,400. The rule applies to utility subsidies that were not included in your gross income.

Rebates funded entirely by federal programs may follow different rules and might not reduce your cost basis. The IRS has not published clear-cut guidance for every rebate type, so if you received any rebate or subsidy, check IRS Fact Sheet 2025-01 or ask a tax professional before you finalize the number.⁴

California’s Self-Generation Incentive Program (SGIP), administered by the California Public Utilities Commission, pays rebates for battery storage.⁵ An SGIP payment and the federal credit can both apply to the same project, but you’ll want to confirm whether your SGIP payment counts as a utility subsidy that reduces your federal cost basis.

Documents to Keep

The IRS generally expects you to keep supporting records for at least three years after filing the return.⁶ Because the solar credit can carry forward across multiple years, the practical retention period runs three years past the final return that uses any portion of it. Hold on to:

The final installer invoice, itemizing equipment, labor, and permit fees separately from any non-solar work.
Your signed sales contract.
Proof of payment: bank statements, credit card records, or loan disbursement documents.
The utility PTO notice or interconnection approval that establishes your placed-in-service date.
Manufacturer spec sheets or labels confirming the equipment meets performance standards.
Any rebate confirmation letter, showing the amount and funding source.

Filling Out Form 5695

Form 5695 is the only form that calculates the Residential Clean Energy Credit, and you file it whether you’re taking the credit for the first time or using a carryforward balance.²

For a new 2025 claim, enter your net qualified solar costs (after subtracting any utility rebate) on Line 1. Other clean energy property types go on Lines 2 through 5b. Line 6a totals the qualified costs, and Line 6b multiplies by 30% to produce your gross credit.⁷ The form then compares that gross credit against your tax liability for the year. The credit is nonrefundable, so it can reduce what you owe to zero but will not generate a refund on its own.³ The allowable credit for the current year lands on Line 15.

From there, the Line 15 amount transfers to Schedule 3 (Additional Credits and Payments) of Form 1040, Line 5a.⁸ Schedule 3’s total flows to Form 1040 and reduces your final tax bill. Tax software handles the transfer automatically; on paper, attach both Form 5695 and Schedule 3 to your 1040.

Carrying Forward What You Can’t Use This Year

Large systems routinely generate credits bigger than a single year’s tax liability. A $15,000 credit does nothing extra for you if you only owe $8,000 in federal income tax. The remaining $7,000 rolls forward, and you claim it by filing another Form 5695 with next year’s return.²

There is no expiration on the carryforward. Even though the credit is going away for new installations, an existing unused balance doesn’t disappear with the 2025 deadline. You keep rolling it forward until every dollar is used.³ Keep each year’s Form 5695 together so the running balance is easy to track.

The Federal Credit Ends After 2025

The Inflation Reduction Act of 2022 originally extended the 30% residential credit through 2032, and plenty of installer brochures and older IRS pages still reflect that timeline. Public Law 119-21, enacted in 2025, cut it short: Section 25D “shall not apply with respect to any expenditures made after December 31, 2025.”¹ For a California homeowner, that means a system placed in service in 2026 or later gets no federal residential tax credit, regardless of what any marketing material says.

Don’t Overlook California’s Property Tax Exclusion

California does not offer a state income tax credit for residential solar, but it does provide a separate property tax benefit that requires no tax filing on your part. Under Revenue and Taxation Code Section 73, adding a qualifying solar energy system to your home does not increase the home’s assessed value for property tax purposes.⁹ The exclusion covers both photovoltaic and solar thermal equipment and stays in place until the property changes ownership.

There’s a deadline here, too. The exclusion applies to qualifying systems installed through June 30, 2026, and a system that qualifies before January 1, 2027, continues to receive the exclusion until the home is sold.¹⁰ If your installation is still in progress, confirm completion dates with your installer so the system clears both the federal and the state windows.

1
Office of the Law Revision Counsel. 26 USC 25D – Residential Clean Energy Credit
2
Internal Revenue Service. Instructions for Form 5695 – Residential Energy Credits
3
Internal Revenue Service. Residential Clean Energy Credit
4
Internal Revenue Service. FS-2025-01 – Energy Efficient Home Improvement Credit and Residential Clean Energy Property Credit FAQs
5
California Public Utilities Commission. Self-Generation Incentive Program
6
Internal Revenue Service. How Long Should I Keep Records
7
Internal Revenue Service. Form 5695 – Residential Energy Credits
8
Internal Revenue Service. Schedule 3 (Form 1040) – Additional Credits and Payments
9
California Legislative Information. California Code RTC 73 – New Construction Active Solar Energy System
10
DSIRE. Property Tax Exclusion for Solar Energy Systems and Solar Plus Storage System