Federal Investment Tax Credit for Maryland Residents

The federal Investment Tax Credit (ITC) is one of the most significant financial mechanisms available to Maryland property owners who install solar energy systems. This page covers the ITC's structure, eligibility rules, interaction with Maryland-specific incentives, and the practical boundaries that determine whether a given installation qualifies. Understanding how the ITC applies within Maryland's regulatory and utility landscape is essential for accurately projecting the economics of a solar project.

Definition and scope

The federal Investment Tax Credit is established under 26 U.S.C. § 48E (residential clean energy) and § 48 (commercial energy property) of the Internal Revenue Code. For residential installations placed in service from 2022 through 2032, the credit rate is 30% of the total eligible system cost (IRS Form 5695 instructions). This rate was restored to 30% by the Inflation Reduction Act of 2022 (Pub. L. 117-169) after having stepped down to 26% in prior years.

The credit applies to the gross installed cost — including equipment, labor, wiring, and mounting hardware — before any rebates that reduce the purchase price are subtracted. Rebates provided by a state or utility that are excluded from gross income under 26 U.S.C. § 136 must be deducted from the cost basis before calculating the credit.

Scope and coverage limitations: This page addresses the federal ITC as it applies to Maryland residents and businesses installing solar energy systems within Maryland. Federal tax law is administered by the Internal Revenue Service and applies uniformly across all 50 states; Maryland-specific statutes, Maryland Public Service Commission (PSC) rules, and Maryland Energy Administration (MEA) programs exist in parallel but do not modify ITC eligibility. Tax situations involving pass-through entities, partnerships, or alternative minimum tax exposure fall outside this page's scope and require analysis under separate IRS guidance.

How it works

The ITC is a dollar-for-dollar reduction in federal income tax liability, not a deduction from taxable income. A taxpayer who owes $8,000 in federal income taxes and installs a $25,000 residential solar system would apply a $7,500 credit (30% × $25,000), reducing the tax bill to $500. Any unused credit can be carried forward to future tax years under § 48E(c).

Eligibility steps for a Maryland residential installation:

1. System placed in service — The solar energy system must be operational (i.e., interconnected and producing power) within the tax year the credit is claimed.
2. Ownership requirement — The taxpayer must own the system outright or through a loan. Leased systems and power purchase agreements (PPAs) transfer the credit to the system owner (typically the installer or financier), not the host property owner. See Maryland Solar Lease vs. Purchase Comparison for analysis of this distinction.
3. Primary or secondary residence — For the residential credit under § 25D (which overlaps with § 48E provisions), the property must be a U.S. residence used by the taxpayer.
4. New construction or retrofit — Both newly constructed homes with integrated solar and retrofits to existing structures qualify.
5. File IRS Form 5695 — Residential claimants report the credit on IRS Form 5695; commercial claimants use IRS Form 3468.

For commercial and agricultural installations in Maryland, the credit falls under § 48 and may interact with depreciation schedules under the Modified Accelerated Cost Recovery System (MACRS). Agricultural solar installations in Maryland involves additional federal and state considerations beyond the standard residential pathway.

Common scenarios

Scenario 1 — Residential purchase with loan financing:
A Maryland homeowner finances a $30,000 rooftop system through a solar-specific loan. Because ownership vests with the homeowner, the 30% ITC ($9,000) is claimable. The Maryland Clean Energy Loan Program, administered through MEA, does not affect this federal credit eligibility.

Scenario 2 — Leased system:
A homeowner signs a lease or PPA with a third-party developer. The developer, as system owner, claims the ITC. The homeowner receives no federal tax credit. This is a critical distinction covered in detail at Maryland Power Purchase Agreements (PPAs).

Scenario 3 — Battery storage added to existing solar:
Under the Inflation Reduction Act, standalone battery storage systems with a capacity of at least 3 kilowatt-hours also qualify for the 30% ITC when installed after December 31, 2022, even if not paired with new solar panels (IRS Notice 2023-29). Solar battery storage in Maryland addresses sizing and interconnection requirements under Maryland PSC rules.

Scenario 4 — Community solar subscriber:
Maryland residents who subscribe to a community solar program and receive bill credits do not own solar equipment and therefore do not qualify for the federal ITC. The community solar developer may claim applicable commercial credits.

Decision boundaries

The ITC interacts with — but does not replace — Maryland's state-level incentives. Maryland's Solar Renewable Energy Credits (SRECs) generate revenue independently of the federal credit. MEA grant programs, when they reduce the purchase price directly, may reduce the ITC-eligible basis. Reviewing the regulatory context for Maryland solar energy systems clarifies which state programs reduce basis versus which provide taxable income.

The ITC does not apply to systems installed for income-generating rental properties under the residential § 25D pathway; those installations must use the commercial § 48 pathway with different documentation requirements.

Permitting status also matters: a system must be fully permitted and inspected under local Maryland jurisdiction requirements before it can legally be placed in service. An unpermitted system cannot establish a valid placed-in-service date, which blocks the credit for that tax year. The how Maryland solar energy systems work overview describes the installation and commissioning sequence that establishes placed-in-service status.

The 30% rate applies through December 31, 2032. Under current statute (Pub. L. 117-169), the rate steps down to 26% in 2033 and 22% in 2034 before expiring for residential installations in 2035, absent further Congressional action.

For Maryland homeowners evaluating overall project economics, the ITC should be analyzed alongside all available incentives documented at the Maryland Solar Authority home and in the broader Maryland solar incentives and tax credits reference.

References

• Internal Revenue Service — Form 5695, Residential Energy Credits
• Internal Revenue Service — Form 3468, Investment Credit
• IRS Form 5695 Instructions
• 26 U.S.C. § 25D — Residential Clean Energy Credit (Cornell LII)
• 26 U.S.C. § 48E — Clean Electricity Investment Credit (Cornell LII)
• Inflation Reduction Act of 2022, Pub. L. 117-169 (Congress.gov)
• IRS Notice 2023-29 — Energy Community Bonus Credit
• Maryland Energy Administration (MEA)
• Maryland Public Service Commission (PSC)
• U.S. Department of Energy — Solar Investment Tax Credit Overview