U.S. Federal Tax Credit for Residential Solar Water Heaters

The U.S. Federal government has provided tax credits for qualifying renewable and energy efficient products installed in U.S. residences since 2006 (§ 25D of the Internal Revenue Code). This was amended with the passage of the Inflation Reduction Act of 2022 (IRA), and is now known as the “residential clean energy property credit.” According to a Frequency Asked Questions (FAQ) document put out by the IRS, the credit applies for property placed in service after December 31, 2021, and before January 1, 2033. It provides for a 30-percent credit for certain qualified expenditures made by U.S. taxpayers for qualified solar water heaters installed in homes through the end of 2032.

To qualify for the residential clean energy property tax credit, the IRS states that solar water heaters must meet the following requirements (see IRS Form 5695 Instructions). IRS Form 5695 is submitted by taxpayers to document and claim the tax credit.

• “To qualify for the credit, the property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which the property is installed.” (§ 25D(b)(2)).
• “At least half of the energy used by the solar water heating property for such purpose is derived from the sun.”

Other conditions and requirements may apply. For more information see the documents linked in this section and consult a qualified tax professional.

Additional resources are provided below:

• Inflation Reduction Act of 2022
• DSIRE Information on the Residential Renewable Energy Tax Credit
• Complete guide to the 2022 federal solar tax credit