Why Buying Solar in 2025 Is a Smart Move for 2026 Taxes

There are a few major financial areas of our lives where thinking well in advance is often prudent, and taxes are a great example. Many of the financial actions you take this year will impact your taxes the following year, and solar installation for commercial or residential solar power is no exception.

At Intermountain Wind & Solar, we're here to serve as one of the top solar companies across Salt Lake City, Utah and Boise, Idaho areas, assisting clients with solar installation and various related services to help with affordable power rates, sustainability and more. We also provide services to assist with important concepts like solar financing and solar tax incentives. Here are some basics on why buying solar in 2025 is a smart move for your 2026 taxes.

The Federal Residential Solar Tax Credit

We'll use the federal solar tax credit, which is abbreviated ITC, as our example for this blog. As of now, the ITC allows homeowners and businesses alike to claim up to 30% of their solar installation costs as a tax credit.

This 30% number is meant to remain until 2033, when it will drop to 26% and then eventually be phased out entirely by 2035. One note, however: The incoming Trump Administration has indicated attempts to pause several forms of funding, including some that may impact the ITC. While the 2025 credit is not expected to be impacted, it's important to check back on this space in the future.

ITC Eligibility

There are some basic criteria for ITC eligibility:

• System must be installed on your primary or secondary residence, which is located in the US
• System is new or being used for the first time; if you're buying a home with an existing system, for instance, you are not eligible for this credit

When to File

When filing the ITC, it's important to note both the solar installation date and the permission to operate (PTO) date from your utility grid. This PTO date will often be a few weeks after your system is installed, and it signifies that your solar panels are now connected and producing energy for the grid.

The IRS requires you to claim the credit in the tax year that the PTO date falls within, even if your system was installed in a previous year. For example, if your system is installed in December 2025 but receives PTO in January 2026, you would file for the ITC on your 2026 taxes.

However, there is an exception for residential solar systems. If your system was installed and PTO received after January 1st, but before December 31st of a given tax year, you may choose to claim the credit on either that year's taxes or the following year's.

How to Claim

Here are the basic steps to claiming the ITC:

• Determine eligibility: Based on the requirements discussed earlier, make sure your system is eligible for the ITC. Ensure that you have all the necessary documents and information to support your claim.
• Complete IRS Form 5695: This is the form used to claim the ITC. You will need to provide details about your solar system, including its cost and date of installation.
• Calculate your tax credit: The ITC is calculated as a percentage of your solar system's total cost. For example, if your system costs $20,000 and you are eligible for a 26% credit, you would receive a tax credit of $5,200.
• Add to Schedule 3 and Form 1040: Once you have completed Form 5695 and calculated your tax credit, you will need to transfer the credit amount to Schedule 3 of your tax return. This schedule is used to report non-refundable credits, including the ITC. You will then need to add the total from Schedule 3 to your Form 1040, which is used to report your overall income and deductions.
• Keep records: It is important to keep records of your solar panel installation and the expenses incurred. This includes receipts, contracts, and any other relevant documentation. You may also need to provide proof of ownership or installation for tax purposes.

See the Results on Next Year's Return

Once you've claimed the ITC on your taxes, you should see the results reflected on next year's tax return. The credit will be applied as a reduction to your overall tax liability, meaning you may owe less in taxes or receive a larger refund.

So there you have it! With basic knowledge and proper documentation, you can successfully claim solar installation taxes in 2025 and see the benefits on your return in 2026!

At Intermountain Wind & Solar, we're here to help clients with all their solar power needs, including solar tax incentives and rebates. For more on any of our solar installation or related solar power services around SLC, Utah and Boise, Idaho, contact us today!