The federal home solar energy credit is a federal income tax credit that may be claimed for a portion of the cost of a solar photovoltaic (PV) system.
Congress extended the ITC in December 2020, providing a 26 percent tax credit for systems installed in 2020-2022 and a 22 percent tax credit for systems installed in 2023.
Systems installed before December 31, 2019, qualified for a 30% tax credit. Unless Congress renews it, the tax credit will expire in 2024.
There is no limit to the amount that may be claimed.
Currently, you can claim the solar tax credit until 2024.
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 Much Money Can Be Saved with this Tax Credit?
- 2 How Many Times Can You Claim the Solar Tax Credit?
- 3 What is the 2021 Solar Incentive Program?
- 4 How Long is the Federal Solar Tax Credit Available for Use?
- 5 What Do You Need to Do to Claim the Federal Tax Credit?
- 6 Filing Form 5695
- 7 How to File Taxes Online in 3 Simple Steps With TurboTax
How Much Money Can Be Saved with this Tax Credit?
Claiming the Solar Investment Tax Credit is worth 26% 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 $2,600 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.
How Many Times Can You Claim the Solar Tax Credit?
If you own a house, you cannot legally claim the solar tax credit multiple times; however, you may rollover any unused portion of the credit to the following tax year for up to five years. Please keep in mind that if you own more than one solar-powered house, you may be eligible.
What is the 2021 Solar Incentive Program?
If you purchase and install a new home solar system in California in 2021, with or without a house battery, you may be eligible for a federal tax credit of up to 26 percent. The residential ITC will be reduced to 22 percent in 2023 and will expire in 2024.
How Long is the Federal Solar Tax Credit Available for Use?
Currently, the residential solar tax credit is set to expire in 2024. If you’re thinking about adding solar energy to your home, now might be the right time to act. The tax credit expires unless Congress renews it.
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.
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.
Filing 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, rented 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.