Solar Tax Credit Carryforward: Can I Use It Next Year?

You installed solar panels and earned a massive $10,000 tax credit. But what if you only owe the IRS $4,000 this year? Many homeowners panic, thinking they lose the remaining $6,000. Good news: You don’t. While the Residential Clean Energy Credit is “non-refundable” (you won’t get a check), the unused portion automatically carries forward to next year. Here is how to track your balance on Form 5695.

BMT Tax Team BMT Tax Team · 📅 Feb 2026 · ⏱️ 5 min read · TAX TIPS › CREDITS
Rule
Rollover
Unused Credit SavesRule
Refund
No
Cannot exceed tax owedFact
Form
5695
Line 16 Tracks ItFile

1. The Rule: Carryforward vs. Refundable

It is crucial to understand the difference between “losing money” and “waiting for money.”

The “Bucket” Analogy
Refundable Credit (e.g., EITC): The IRS fills your tax bucket. If it overflows, they send you the extra cash.
Non-Refundable (Solar): The IRS fills your bucket only to the top. If you have extra credit, they put it in the freezer (Carryforward) for next year. It never spills over as cash.

2. How It Works (Calculation)

Let’s assume you installed a $30,000 system. Your 30% credit is $9,000.

Year Your Tax Bill (Liability) Credit Used Credit Remaining
Year 1 $4,000 -$4,000 $5,000 (Carries Forward)
Year 2 $3,000 -$3,000 $2,000 (Carries Forward)
Year 3 $5,000 -$2,000 $0 (Fully Used)

3. Timeline: Filing the Carryforward

The credit does not move automatically. You must actively claim it.

Tax Season Form Action Critical Step
Year 1 Filing Form 5695
Calculate Line 15 (Current)
Year 1 Result Line 16
“Credit Carryforward to 2027”
Year 2 Filing Re-File
Enter Prior Year Carryover
Planning Note
If you have a large solar carryforward, you might consider converting Traditional IRA funds to a Roth IRA to intentionally increase your taxable income for the year, utilizing the credit before it loses value due to inflation.

4. Strategy: Increasing Tax Liability

Since you can’t get a refund, make the IRS bill you more (strategically).

  • The Problem: You have $10,000 in credits but only owe $2,000 in taxes. It will take 5 years to use the credit.
  • The Fix (Roth Conversion): Convert pre-tax 401(k) or IRA money to a Roth IRA. This triggers a tax bill.
  • The Magic: Normally, you’d pay tax on the conversion. But now, your “Solar Credit” pays the tax for you. You get tax-free Roth growth effectively for free.

5. Warning: Solar (25D) vs. Windows (25C)

Not all energy credits survive the New Year.

⛔ Windows Do Not Carry Forward

Confusing Section 25D (Solar) with Section 25C (Home Improvement) is costly.

  • Solar / Battery (Sec 25D): Unused credit CARRIES FORWARD indefinitely (until used).
  • Windows / HVAC (Sec 25C): Unused credit EXPIRES at midnight on Dec 31. If you don’t use it, you lose it forever.

6. Frequently Asked Questions

Does the credit expire?
Generally, no. As long as the tax credit law remains in effect (currently extended well into the 2030s), the carryforward does not have a set expiration date for Section 25D.
Can I apply it to Self-Employment Tax?
No. The solar credit only offsets “Income Tax.” It does NOT lower your Social Security or Medicare taxes (Self-Employment Tax). You still have to pay those.