Residential Clean Energy Credit: Ended December 31, 2025
The federal Residential Clean Energy Credit was one of the most valuable tax incentives available to homeowners, until it was repealed effective 31 December 2025. Here's what it covered, who can still claim it on a 2025 return, and what Massachusetts offers in its place.
Key Takeaways
- 30% tax credit, no annual limit — through 31 Dec 2025 only
- Covered solar, batteries, geothermal, and wind
- Unused credit carries forward to future tax years
- Can be combined with Massachusetts incentives for maximum savings
What Is the Residential Clean Energy Credit?
The Residential Clean Energy Credit, also known as the 25D credit (after Section 25D of the tax code), was a federal tax credit that rewarded homeowners for installing renewable energy systems. It covered 30% of the total cost with no annual dollar limit—making it one of the most generous energy incentives available.
Originally passed in 2005 and significantly extended by the Inflation Reduction Act of 2022, this credit applies to solar panels, battery storage, geothermal heat pumps, small wind turbines, and fuel cells installed at your primary or secondary residence.
Key Advantage: Carry-Forward
Unlike 25C, if your Residential Clean Energy Credit exceeded your tax liability, the unused portion carried forward. That still applies to a system placed in service by 31 December 2025: you eventually receive the full benefit even though the credit itself is gone.
What Qualified for the 25D Credit?
The Residential Clean Energy Credit covers several categories of clean energy technology. Here's what qualifies:
Solar Energy
30%- Solar panels (photovoltaic)
- Solar water heating
- Installation and labor
- Permits and inspection fees
Battery Storage
30%- Battery systems 3+ kWh
- Must charge from renewable source
- Installation costs
- Works with or without solar
Wind Energy
30%- Small wind turbines
- Tower and mounting
- Installation costs
- For residential use
Geothermal Heat Pumps
30%- Ground source heat pumps
- Ground loop installation
- Indoor equipment
- Must meet Energy Star
Important: Battery Requirement
Standalone batteries only qualify if they're charged primarily (80%+) from renewable sources like solar. If you're adding a battery to an existing solar system or installing both together, you qualify. Grid-only batteries generally don't qualify.
Credit Amounts by Year
The Inflation Reduction Act originally set the Residential Clean Energy Credit at 30% through 2032 with a gradual phase-down after that. That schedule never ran its course — the credit was repealed outright by the One Big Beautiful Bill Act, effective for anything placed in service after 31 December 2025. The phase-down below is what would have happened:
| Year | Credit Rate | Example: $25,000 System |
|---|---|---|
| 2022-2032 | 30% | $7,500 credit |
| 2033 | 26% | $6,500 credit |
| 2034 | 22% | $5,500 credit |
| 2035+ | Expires (unless extended) | $0 |
25C vs. 25D: What's the Difference?
The IRS offered two main residential energy tax credits. Both were repealed on the same date, but the difference still matters if you are filing for a 2025 installation:
| Feature | 25C (Efficiency) | 25D (Clean Energy) |
|---|---|---|
| Credit Rate | 30% | 30% |
| Annual Limit | $3,200 max | No limit |
| Carry-Forward | No | Yes |
| Covers | Heat pumps, insulation, windows, doors | Solar, batteries, geothermal, wind |
| Property Type | Primary residence only | Primary or secondary home |
Both Credits Ended Together
25C and 25D were separate credits, and through 2025 you could claim 25D for solar and 25C for a heat pump in the same year. Both were repealed effective 31 December 2025, so neither applies to work done in 2026.
How to Claim the Residential Clean Energy Credit
Complete Your Installation
The system must be installed and operational before December 31 of the tax year you want to claim the credit. "Placed in service" means it's ready to use.
Gather Your Documentation
Keep these documents for your tax records:
- • Itemized invoice from installer
- • Manufacturer certifications
- • Proof of payment
- • Permit documentation
Complete IRS Form 5695 (2025 returns)
This step no longer applies to new work. If your system was placed in service on or before 31 December 2025, the credit was claimed on Part I of IRS Form 5695 (Residential Energy Credits) with that year’s return, where your total costs gave the 30% figure. Nothing installed in 2026 qualifies.
Transfer to Form 1040
The credit amount from Form 5695 transferred to Schedule 3, then to your Form 1040, reducing your tax liability. Excess credit carries forward automatically — which still applies to an unused balance from a 2025 installation.
Stacking with Massachusetts Incentives
Massachusetts residents can combine the Residential Clean Energy Credit with several state and utility incentives:
SMART Program
Ongoing per-kWh payments for solar generation. Rates vary by utility and system size.
Ongoing incentive paymentsConnectedSolutions
$275 per kW of average contribution for battery storage participating in demand response.
$2,500+/year for typical batteryMA State Tax Credit
15% state tax credit for solar installations, up to $1,000.
Up to $1,000Net Metering
Credit for excess solar electricity sent to the grid, reducing your electric bill.
Bill credits at retail rateMassachusetts Stacking Example: Solar + Battery
* Plus ongoing SMART payments and ConnectedSolutions payments in subsequent years.
The Bottom Line
The Residential Clean Energy Credit is one of the most valuable tax incentives available to homeowners. With 30% back on solar, batteries, and geothermal—plus no annual cap and carry-forward for unused credits—it makes clean energy investments significantly more affordable.
For Massachusetts residents, the federal credit combined with SMART and ConnectedSolutions used to offset 40-60% of system costs. The federal half of that ended on 31 December 2025, but SMART, ConnectedSolutions, net metering and the Massachusetts Schedule EC credit all continue, and rising electricity prices still make the case for solar.
Ready to Go Solar?
Explore Massachusetts solar and battery incentives, and learn how to maximize your savings.
Frequently Asked Questions
What is the Residential Clean Energy Credit?
The Residential Clean Energy Credit (Section 25D) was a federal tax credit covering 30% of the cost of solar panels, battery storage, wind turbines, geothermal heat pumps, and fuel cells at your primary residence, with no annual dollar limit. The One Big Beautiful Bill Act repealed it: it applies only to property placed in service on or before 31 December 2025.
Is there a federal solar tax credit in 2026?
There is no federal solar tax credit in 2026. Section 25D was repealed effective 31 December 2025. Through 2025 it was 30% of the total system cost including equipment, installation, permits, and sales tax, so a $25,000 installation earned a $7,500 credit. Massachusetts still offers its own credit on Schedule EC: 15% of net expenditure, capped at $1,000.
Can I claim the Residential Clean Energy Credit on a rental property?
No. The 25D credit applied only to your primary residence or a second home you personally used; rental and investment properties never qualified. The credit itself was repealed effective 31 December 2025.
Is the 25D credit refundable?
No, but unlike 25C, unused portions of the 25D credit can be carried forward. This still matters after repeal: if you placed a system in service on or before 31 December 2025 and could not absorb the whole credit that year, the remainder carries onto later returns until it is exhausted.
What's the difference between 25C and 25D credits?
The 25C credit (Energy Efficient Home Improvement Credit) covered efficiency upgrades like heat pumps, insulation, and windows with annual caps ($3,200 max). The 25D credit (Residential Clean Energy Credit) covered clean energy generation like solar and batteries with no annual cap, and unused amounts carried forward — which 25C never did.