The federal home solar energy tax credit is a federal income tax credit that may be claimed for a portion of the cost of a solar panel system.
You can deduct 30% of the cost of installing a solar energy system for heating, solar power generating, and other solar household items from your federal taxes thanks to the new legislation’s Residential Clean Energy Credit.
The benefit, which has been revived from an earlier, less beneficial federal tax credit, will be accessible to taxpayers for over ten years. This means that homeowners who are thinking about installing solar panels have plenty of time to do it.
These are the main points.
You are entitled to a nonrefundable credit against your federal income taxes, equal to 30% of the qualified expenses if you install solar energy equipment in your home at any time between now and the end of 2032.
There is no limit on these costs; regardless of whether you spend $20,000 or more than $100,000 on costs related to a residential solar system, you are still eligible for the 30% tax benefit.
Currently, you can claim the solar tax credit until 2032.
The solar tax credit is a tax reduction on a dollar-for-dollar basis. If you have a $1 credit, you pay $1 less in taxes. It’s as simple as that.
If you owed $5,000 in taxes to Uncle Sam, you would be able to reduce your total tax bill to $2,400 if you invested $10,000 in a new solar-powered system.
It’s important to note that a tax credit is different than a refund. You need to owe taxes to claim the solar tax credit. Fortunately, most people are eligible because they owe taxes each year anyway.
Table of Contents
- 1 How Does the Solar Tax Credit Work?
- 2 How Much Money Can Be Saved with this Tax Credit?
- 3 Is There an Income Limit?
- 4 Solar Tax Credit Carryover
- 5 How Does the Solar Tax Credit Work if I Get a Refund?
- 6 Can You Get a Tax Deduction for a Solar Loan?
- 7 Can You Claim the Solar Tax Credit for a Second Home?
- 8 Solar Credit for Rental Property
- 9 When is the Solar Tax Credit Expiration Date?
- 10 How to Calculate the Solar Tax Credit
- 11 What Do You Need to Do to Claim the Federal Tax Credit?
- 12 Solar Tax Credit IRS Form 5695
- 13 Solar Tax Credits by State
- 14 How to Claim the Solar Tax Credit on Turbotax
- 15 How to File Taxes Online in 3 Simple Steps With TurboTax
How Does the Solar Tax Credit Work?
The Solar Investment Tax Credit (ITC) is now worth 30% of the price of your entire system. This includes the cost of the components and the installation’s contractor expenses. If purchasing and installing your system costs $10,000, you would be due $3,000 in credit.
You are only allowed to claim the credit if you own your system. This is why, if at all possible, we strongly oppose solar leasing. If another business rents you the system, they continue to own the hardware and are eligible for the incentives. If you lease, you’ll still enjoy the advantages of affordable, green energy.
But failing to take advantage of the tax credit is a big setback for your system’s ability to generate a profit. It makes more sense to use solar financing in its place. The incentives that make solar such a wise investment are still yours to keep, even if you are still responsible for the financing.
How Much Money Can Be Saved with this Tax Credit?
Claiming the Solar Investment Tax Credit is worth 30% of the system cost. This applies to paying contractors and the cost of the parts.
Anyone spending $10,000 on a solar system would be able to claim back $3,000 in credits.
The catch is that you must own the system. It doesn’t apply to solar leasing agreements. The person who owns the system claims the credit, so if you lease from a company, they get to claim the credit, not you.
With solar leasing, you can still save money on your bills, but you won’t be able to claim any tax incentives. This is a massive blow to the ROI of installing the system in the first place.
This credit makes such a difference that it’s highly recommended you finance a solar system if you don’t have the money immediately available to finance its installation.
Is There an Income Limit?
The ITC has no upper-income restriction. To be able to take full advantage of the benefit, you must have a sizable tax liability. If your tax liability is less than the credit, the remaining credit will carry over from year to year.
Solar Tax Credit Carryover
You may deduct your tax credit over a number of years from your federal income taxes, but this credit carryover is only permitted while the IRS solar tax credit is in place, so you must have used the entire credit by the time it expires on January 1, 2032.
How Does the Solar Tax Credit Work if I Get a Refund?
As a nonrefundable tax credit, the amount of the solar tax credit that exceeds your tax liability will not result in a tax refund. Any unused portion of the solar tax credit, however, may be carried over to the following tax year.
Can You Get a Tax Deduction for a Solar Loan?
Consumer loan interest (sometimes known as a personal loan) is typically not tax deductible. The interest would only be deductible as home mortgage interest if the loan was secured by your home (such as home equity or another mortgage).
Can You Claim the Solar Tax Credit for a Second Home?
You can apply for the Residential Energy Efficiency Property Credit for solar, wind, and geothermal technology in both your primary residence and a secondary dwelling, according to the U.S. Department of Energy.
Solar Credit for Rental Property
Installing solar power at rental buildings you own will not qualify you for the residential solar credit. However, you can claim it if you also reside there for a portion of the year and rent it out the rest of the time.
- To account for the time you aren’t in a vacation home or rental property, you must reduce the credit.
- You can only get 25% of the credit, for example, if you only spend three months there each year. You might claim 25% of the system’s cost, or $650 if the system cost $10,000. The 26% credit would be $2,600.
- $10,000 system cost divided by 0.26 (26% credit) equals $2,600 in credit.
- $650 in credit equals $2,600 credit amount multiplied by 0.25 (25% of the year).
When is the Solar Tax Credit Expiration Date?
Currently, the residential solar tax credit is set to expire in 2032. If you’re thinking about adding solar energy to your home, now might be the right time to act. There has never been a better time to take advantage of this credit. The Federal government wants to encourage Americans to invest in solar energy.
How to Calculate the Solar Tax Credit
The formula for calculating the value of your solar tax credit is straightforward.
Tax credit value = project’s total cost multiplied by 0.30
As a result, your tax credit will be worth $9,000 if your project costs $30,000 ($30,000 x 0.30 = $9,000).
The total cost of the system may include adjustments to electrical boxes that are required to make the solar installation easier.
A dollar-for-dollar income tax decrease is provided by the credit. In other words, the credit lowers the amount of taxes you owe. Additionally, it implies that in order to qualify for the credit, taxes must be paid and filed during the same tax year.
Let’s discuss how to apply for your solar tax credit now that we understand how to compute it.
What Do You Need to Do to Claim the Federal Tax Credit?
Let’s look at the steps you need to follow if you’re filing your own taxes. First, we recommend that you use online tax filing to use the correct forms and not make any mistakes.
To claim the tax credit, you’ll need to file Form 5695 with your tax return. This is the form designed for residential energy tax credits.
Solar Tax Credit IRS Form 5695
Step One – Make sure you have receipts for all expenses. Keep these together and store them safely, so you have them if you get audited.
Step Two – Confirm that you’re able to claim the tax credit in the first place. Again, it’s easier than it sounds. If you own the system and expect to pay Federal taxes this year, you’ve already qualified for the residential energy solar tax credit.
Step Three – Download and fill out Form 5695 in order to add up your credits and determine how much you’re eligible to claim from Uncle Sam.
Step Four – Include your information for the renewable energy credit on Form 1040.
It’s easy to claim the federal solar energy tax credit with online tax filing. Their software will guide you through the process and provide all the correct forms. Be sure to keep the receipts for everything. You’ll be expected to prove your expenditure if you get audited.
Some of the bigger expenses you’re able to take advantage of include: the cost of the solar equipment, shipping costs, consulting fees, installation costs, the purchases of any tools, renting heavy equipment, and all associated permitting costs.
Costs will always vary depending on your personal circumstances and the solar system you want to install. The only thing you need to keep in mind is that you can’t claim your labor as an expense.
Solar Tax Credits by State
Arizona has great incentives to make switching to solar energy more affordable.
- In Arizona, purchased household solar systems are eligible for the state’s 25% solar tax credit. (Personal income tax credit of up to $1,000.)
- Property taxes on the increased home value due to the rooftop solar panel system are exempt.
- A home solar system sales tax exemption of 5.6%.
The present federal solar tax credit is available to all people even though California does not have a state-wide solar tax credit. Federal tax returns may be used to claim the solar tax credit, which is worth 30% of the cost of the installed system.
Colorado experiences 245 sunny days on average per year. One of the reasons Coloradans are switching to solar power is to use all of this sunshine to power their houses in a safer, more environmentally friendly, and more cost-effective manner. Colorado also provides fantastic solar incentives to help you get started with solar power at a lower cost.
- A property tax exemption in Colorado that deducts the increased value of a solar panel installation from the home’s assessed value.
- 2.9% state sales tax exemption for household solar systems.
- Monetary rewards for the purchase of brand-new rooftop solar panels. (Variable depending on utilities and system size.)
- Per kWh (kilowatt-hour) that the system produces, compensation is given.
The cost of power for a home in Connecticut is among the highest in the nation. Connecticut people are converting to solar energy for a variety of reasons, though controlling electricity costs is one among them. You can take advantage of the state’s fantastic solar incentives by installing a new solar panel system together with getting outage protection and lowering your carbon emissions.
- Exemption from property taxes on the increase in home value caused by the solar installation in Connecticut.
- Home solar system sales tax exemption of 6.35%.
- Based on system size, there is a $0.426 per installed watt upfront cost discount for purchased systems. (10 kilowatts (kW) maximum size).
- Payout of $0.30 per kilowatt-hour (kWh) generated by solar power systems for leased systems. (Size: 20 kW maximum.)
- Through a Power Purchase Agreement (PPA), Connecticut solar energy is accessible to qualified low-income households at a discounted price.
Florida additionally provides incentives that may enable you to transition to solar power more affordable.
- Property taxes on the increased home value due to the rooftop solar installation are exempt.
- 6% state sales tax exemption for household solar systems.
Hawaii Tax Incentives and Solar Rebates
- In Hawaii, purchased household solar systems are eligible for the 35% state solar tax credit. (Maximum tax credit of $5,000.)
- Renters and homeowners in Hawaii who qualify can receive special financing for a rooftop solar system.
- Property taxes on the increased home value due to the rooftop solar panel system are exempt.
A personal tax credit is available in Iowa which is 50% of the federal solar tax credit, which is 26%. Therefore, you are entitled for $4,680 from the federal government (26% $18,000) and an additional $2,340 (50% of the federal credit) for an average 6-kW solar energy system installed for $18,000.
You can deduct both sums from your yearly tax returns for the period following the completion of a solar installation on your property. There is a $5,000 credit cap. It’s wonderful news for Iowa homes interested in solar energy that any unused credit can be carried over for up to ten years if it lowers your tax burden below $0.
Sadly, Kentucky doesn’t currently provide a specific state rebate for the installation of solar panels. However, some Kentucky solar firms do provide their own installation or equipment incentives. To find out if you qualify for any further rebates or financial incentives for your renewable energy system, be sure to check with your installation provider.
Every resident of Louisiana is eligible for the federal solar tax credit. It represents 26% of the overall system cost and is deducted from your federal income taxes for the tax year that the system is put into service. The mean ITC is a whopping $8,353 for Louisiana consumers, who spend an average of $32,125 to go solar.
New Jersey’s electricity costs are over 33% higher than those in other states. But when you switch to solar in New Jersey, you can also benefit from reduced electricity costs. Additionally, you can produce and store your own solar energy to lessen your carbon impact and safeguard your home from unforeseen power outages.
There are also a number of financial incentives that may be used to lease or buy brand-new rooftop solar panels and a battery storage system.
- Per kWh (kilowatt-hour) that the system produces, compensation is given. Depending on market value.
- Home solar system sales tax exemption of 6.625%.
- Exemption from property taxes on the increase in home value caused by the rooftop solar installation.
Compared to the national average, the electricity prices in the Empire State are more than 48% higher. That’s just one of the numerous reasons New Yorkers decide to install solar power systems in their homes to generate and store more inexpensive electricity. The best solar incentives in the United States are also found in New York.
- In New York, purchased home solar systems are eligible for the state’s 25% solar tax credit. (Maximum state tax deduction of $5,000)
- Up to $1,000 for every kilowatt (kW) of solar power installed.
- Exemption from property taxes on the increase in home value caused by a solar and storage system.
- 4% state sales tax exemption for household solar systems.
In order to maintain North Carolina’s successful track record of encouraging clean energy, Duke Energy, the legislature, and clean energy supporters worked together to draft House Bill 589, which is the outcome of which is the Duke Energy Solar Rebate.
Homes in the Duke Energy region can receive a refund if they install solar electric (PV) systems. Up to 10,000 watts, the household Duke Energy Solar Rebate is worth 40 cents per watt ($4,000 maximum rebate value).
For a solar electric system and an energy storage system, Oregon residents are eligible for rebates of up to $5,000 and $2,500, respectively.
One of the few states with an SREC program is Pennsylvania. For each kilowatt-hour (kWh) of solar energy your system produces, you can receive credits with SRECs, also known as Solar Renewable Energy Certificates (RECs). You can generate income each year by reselling your solar credits on the SREC market.
Although Texas lacks a nationwide solar tax credit or rebate program, many local governments and utility companies (both big and small) provide incentives to homes that install solar panels. Benefits from Austin Energy are available to people who live in the state capital city of Austin.
Unlike several other states, Virginia does not offer a state solar tax credit. However, all Virginian homeowners are eligible for the federal solar tax credit. The ITC offers a tax credit equal to 30% of your overall solar installation costs.
Solar energy equipment, such as rooftop solar panels, is exempt from sales tax in Washington. Sales taxes may not be paid on the acquisition of machinery, equipment, or the setting up of solar energy installations under the exemption, which is valid through 2029.
You may increase your control over your electricity expenses and lower your carbon impact in Wisconsin by switching to solar power. Wisconsin also provides a number of solar incentives that may enable you to go solar more affordably.
- Exemption from property taxes on the increase in home value caused by a Wisconsin solar installation.
- State sales tax exemption for household solar systems is 5%.
- In Wisconsin, eligible homeowners that buy and install new solar panels are eligible for a $500 solar rebate.
How to Claim the Solar Tax Credit on Turbotax
- Open or continue your return in TurboTax.
- In the search box, search for energy improvements. (Don’t search for “energy credit,” as this will take you to the wrong place in the program.)
- Click the “Jump to” link in the search results.
- At the bottom of the Energy-Saving Home Improvements screen, answer Yes and click Continue.
- Follow the on-screen instructions.
How to File Taxes Online in 3 Simple Steps With TurboTax
Remember, with TurboTax Online Tax Filing we’ll ask you simple questions and fill out the right forms for you. We’ll find every tax deduction and credit you qualify for to get you the biggest tax refund, guaranteed!