The Federal solar tax credit makes residential solar a cost-effective investment for your home. Here are the key points you need to know about how the tax credit works for your solar project.
- How the Federal Solar Tax Credit Works
- 1 – The Solar Tax Credit is 30%
- 2 – You Must Have Taxable Income
- 3 – You Must Own Your Solar System
- 4 – The Solar Must Be At Your Primary Residence or Second Home
- 5 – The 30% Credit Runs From 2022 through 2032
- 6 – Any Unused Tax Credit Rolls Over
- 7 – It Must Be Installed By The End Of The Year
- 8 – File Form 5695 With Your Taxes
- 9 – Ask A Tax Professional
How the Federal Solar Tax Credit Works
1 – The Solar Tax Credit is 30%
When you install solar panels on your home, 30% of your total project cost can be claimed on your federal tax return.
For example, all required installation, labor, and inspection costs are eligible expenses for the Federal credit. Battery storage systems also qualify for the 30% federal tax credit.
Example: If you spend $30,000 on a solar photovoltaic system, you can receive a $9,000 tax credit from the Federal Government if you qualify.
2 – You Must Have Taxable Income
A tax credit is different from a tax refund. You must owe money to the IRS to use the tax credit.
An IRS credit reduces the Federal income taxes you owe. So if you owe the IRS $10,000 in Federal taxes and you have a credit of $9,000 for solar, then you will only owe $1,000 in Federal taxes.
If you don’t have any income, you won’t get any money from the IRS because you don’t owe them anything. You need to have some tax liability.
3 – You Must Own Your Solar System
To get the tax credit, you need to purchase your solar. Paying cash or using a solar loan qualifies for the credit.
You aren’t eligible if you have a solar lease or a Power Purchase Agreement.
4 – The Solar Must Be At Your Primary Residence or Second Home
You can’t claim it on rental property on your personal taxes.
5 – The 30% Credit Runs From 2022 through 2032
The 30% Solar Investment Tax Credit starts in 2022 and will last for ten years until December 31st, 2032.
It then drops to 26% in 2033, per the Inflation Reduction Act.
6 – Any Unused Tax Credit Rolls Over
Any unused credit rolls over to the following year as long as the credit is in effect.
So if you can’t use it all in one year, it keeps rolling to the next year until you’ve used all of it.
7 – It Must Be Installed By The End Of The Year
The solar does not need approval from your utility or permitting jurisdiction to qualify.
8 – File Form 5695 With Your Taxes
To receive your credit for your solar energy system on your Federal Income Taxes, file IRS form 5695 with your taxes.
9 – Ask A Tax Professional
Always consult your tax professional for tax advice on solar incentives.
The only information that you should rely on is from your accountant or tax preparer.
The solar tax credit is a significant incentive for going solar, and it’s essential to understand how it works so you can take advantage of the savings. For more information about going solar, we recommend reading The 7 Biggest Mistakes to Avoid When Going Solar.