Tax questions are among the most common things we hear from homeowners considering solar. And they’re among the easiest things to get wrong, whether from a well-meaning but uninformed salesperson or an online tax tool that doesn’t know to ask the right questions.
To get it right, we brought in Bill Spar of ARP Tax and Estate Planning, a 25-year financial advisor and tax professional serving clients in all 50 states. Here’s what he wants every solar buyer to understand.
ABOUT OUR GUEST
Bill Spar: ARP Tax and Estate Planning
Bill has been in financial advising for 25 years and founded ARP Tax and Estate Planning 17 years ago. The firm handles individual, corporate, and small business returns in all 50 states, along with estate planning, trust creation, IRA/401k rollovers, and tax planning. Located at 615 W. Deer Valley Road, Phoenix. Phone: 623-889-3403. Website: arptaxpro.com.
Here’s the most important thing to understand before anything else: the solar incentive is a tax credit, not a tax rebate. Those two words are not interchangeable, and the difference is significant.
Bill compares it to a reverse mortgage: people often think a reverse mortgage means the bank sends them money every month. It doesn’t, it just means they stop paying their mortgage, so that money stays in their pocket. The solar tax credit works the same way. You don’t receive a check for 30% of your system cost. You reduce what you owe the IRS by that amount.
Bill doesn’t believe most salespeople are being deliberately dishonest about this. He thinks many of them simply don’t know the difference, or were trained incorrectly. Either way, the result for the homeowner is the same: a nasty surprise come tax time.
This is the question every solar buyer needs to answer before signing anything: when you file your taxes, do you owe the government money, or do you get a refund?
If you get a refund every year, that means you’ve been overpaying throughout the year, essentially giving the IRS an interest-free loan. More importantly for solar, it likely means you have little or no tax liability. And if you have no liability, a tax credit has nothing to reduce.
You may need to adjust your withholding to create liability, essentially taking home more money throughout the year so you owe something at filing time. That’s when the solar credit does its job: it reduces (or eliminates) what you owe. Bill’s preferred tax outcome is actually to owe a small amount, perhaps a few hundred to a few thousand dollars, because that demonstrates appropriate liability without drawing unnecessary attention from the IRS.
This is where a lot of financed solar buyers get caught off guard. Here’s how most solar loans actually work:
The problem: many homeowners don’t realize this is how the loan works. They spend or don’t redirect their tax credit, and then 18 months later their solar payment increases and they’re confused and frustrated. The information is in the contract, but it’s often not explained clearly by the salesperson.
There are better loan products available. One that Bill and Ralph both appreciate starts the payment at the higher “worst case scenario” rate from day one, as if you never applied the tax credit. It can then only get better: the lender allows you to make principal paydowns up to three times over the loan life, reducing your payment. No surprises. No balloon. Full transparency.
When you lease a solar system, the leasing company owns the panels, so they claim the tax credits and pass some of that value to you through lower power pricing. You don’t get a tax credit because you don’t own the system.
For homeowners who always get a large refund, don’t want to adjust their withholding, or don’t have significant tax liability, leasing may be the right choice. For those who consistently owe taxes at filing time, purchasing and claiming the credit typically makes more financial sense. Talk to your tax professional before deciding.
Bill’s interpretation: once the system is physically installed on your roof, it qualifies for the tax credit, even if it hasn’t been turned on yet. Utility interconnection and inspection can take four to eight weeks after installation. In Bill’s view, you don’t need to wait for permission-to-operate (PTO) to claim the credit for that tax year.
What definitely does not qualify: signing a contract. Simply purchasing the system. Having one bracket installed and calling it “started.” The system needs to be physically on the roof.
Important note: this is Bill’s professional interpretation. Tax situations vary. Consult your own tax advisor before making assumptions about timing.
More than most people realize. Items that may qualify as part of your solar installation tax credit:
What does not qualify: roofing work. Even if Harman (or another installer) required a new roof to safely mount the panels, the IRS’s position is that you need a roof regardless, so it doesn’t count as a solar expense.
The federal solar tax credit applies only to your primary residence, defined as where you live for at least six months of the year. If you install solar on a rental property or a vacation home you spend less than half the year in, you don’t get the residential tax credit.
That doesn’t mean the investment is worthless. On a rental, the reduced energy cost benefits whoever’s paying utilities (often the tenant), and the installation cost can potentially be deducted as a business expense. On a vacation property you own outright, you capture the savings in lower utility bills during your stays. Just don’t expect the 30% credit.
Good news: unused federal solar tax credit can be rolled forward. If your credit exceeds your tax liability in year one, the remainder carries over to the following year. Bill believes you can roll it forward for up to three years, and the tax software handles this automatically, it tracks the remaining credit and applies it until it’s used up.
As of mid-2025, there’s uncertainty in the industry about whether the ITC will be extended, reduced, or restructured. Bill’s take: it will stay. At 30%, it’s not a budget-breaking line item, and solar has proven itself as a mainstream technology with significant domestic manufacturing investment behind it.
Ralph’s perspective: there’s a logical case for tying enhanced credits to American-made products. If the policy goal is domestic manufacturing, rewarding purchases of U.S.-made panels and equipment makes more sense than a blanket credit regardless of origin. Either way, the credit’s elimination seems unlikely given the scale of investment already committed to the renewables sector.
Bill’s firm has a seven-page intake form that covers all of this for every client, every year. The questions exist because the IRS requires updated information annually, and because people regularly forget to mention things that significantly affect their tax outcome. Half of Bill’s solar clients each year don’t even bring their solar paperwork, they forget they have a $15,000 credit sitting there.
“Ignorance is not an answer with the IRS. You can’t plead that you didn’t know. It’s your responsibility.” — Bill Spar
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