Unlike a tax rebate/refund, where you receive a return on the excess amount of taxes you have paid to the state/federal government in the past year, the federal government provides a solar tax credit (also known as the investment tax credit) that enables you to deduct 26% of the cost of a solar energy system from your taxes, dollar for dollar. As a credit you take the amount directly off your tax payment, rather than as a deduction from your taxable income.
Claim Your Credit
To claim the credit, you must file IRS form 5695 as part of your tax return, you calculate the credit on the form, and then enter the result on your 1040. For example, if you paid $25,000 for the installation of a solar energy system, you qualify for a $7,500 tax credit.
If you were to owe $10,000 in taxes when tax season rolls around, you could apply the entire $7,500 credit and you would owe Uncle Sam the remaining $2,500. In order to qualify for this 26% tax credit, one must be actively paying taxes. Also, the credit does not apply for installations on rental properties. Anyone who installs panels on an existing home, new construction, or second residence / vacation home will be able to utilize the tax credit.