In this this article, I’m going to go over the solar federal tax credit, what it is, how to get it, and what it covers. At the end of the article, I’ll also answer some common questions.
Why Do We Need The Solar Tax Credit?
The cost of solar has been dropping quickly over the years, but its still unaffordable to many people unless incentives are involved. With this in mind, the US Government originally created the Solar Federal Tax Credit also known as ITC to help bring down the cost of going solar.
There’s a lot of confusion out there about what exactly this tax credit is, how you get it, and what all of the recent changes include.
What Is The Solar Tax Credit?
The solar federal tax credit is a dollar for dollar reduction in the amount of income tax you owe. This means if you owe any federal income tax, you can use any money you get from the solar tax credit to pay some of, or all of what you owe in taxes.
The tax credit was supposed to be 26% in 2022 and drop to 22% in 2023. However, under the Inflation Reduction Act passed in 2022, the tax credit was set to 30% and will remain there until 2032.
In 2033 the tax credit will drop to 26%, in 2034 it will be 22%, and in 2035 the tax credit is set to expire. This gives people 10 years to take advantage of the full 30% tax credit.
This means, you can get a tax credit worth 30% of the cost to go solar.
What Does The Solar Tax Credit Cover?
This includes the cost of solar panels, wires, mounting equipment, inverters, labor, and any related taxes and permits. The exact total cost of these things depends on the amount of solar power you’re able to collect and the amount of electricity you use, so the cost will change from home to home.
There’s no limit to how much you can get on the tax credit and you could also use it for a battery system. You can also get the credit if you install the solar system yourself.
How Much Can I Save With The Solar Tax Credit?
if you go solar while the tax credit is at 30% and the total cost to purchase and install you solar system cost was $30,000, you’ll have $9,000 dollars that you’ll be able to deduct from your federal income tax.
So, let’s say you owe $6,000 in federal income tax, you could pay it all using your solar tax credit.
In this case, you’ll still have $3,000 left from the tax credit. You can roll over this, or any extra amount to the following tax year, up to the year the tax credit expires.
This better helps to take advantage of the credit if you pay little in taxes each year.
What If I Don't Owe Federal Income Tax?
Even if you don’t owe any federal income tax you may still be able to get the tax credit.
The reason is that for most people, your employer is collecting federal income tax from your paycheck throughout the year. This means you’ve been paying federal income tax throughout the year, so you do have income tax to apply the solar tax credit dollars.
This is also true if you only owe a little, nothing, or are even owed money on your taxes. All that matters is you had federal income tax taken from your paycheck already, so you will be able to qualify for the credit, if you meet the tax credit qualifications.
How Do I Qualify For The Solar Tax credit?
In order to qualify for the credit:
1. You must be installing a solar system in either your primary or secondary residence in the US.
2. The system must also either be purchased outright or through financing options.
3. You must also be installing a new solar system meaning the tax credit cannot be used on an existing solar system.
Installing Solar At Your Primary or Secondary Residence
You must be installing a solar system in either your primary or secondary residence in the US. This means you cannot get the solar tax credit on rental properties you own, unless you live there for a part of the year. In that case, you’ll get a certain percent of the credit based on the percent of the year you live in the rental property.
Here are some qualifying housing types:
- Mobile home
- Cooperative apartment
- Manufactured home that conforms to Federal Manufactured Home Construction and Safety Standards
If you are unable to use your residence to get the credit for this, or any other reason, you may still be able to qualify for community solar. Click here to learn more about community solar.
Purchasing or Financing a System
The system must either be purchased outright or through financing options, but you won’t qualify for the tax credit if you rent or lease your solar system even if you own your home.
Installing a New System
You must also be installing a new solar system meaning the tax credit cannot be used on an existing solar system.
How Do I Claim The Solar Tax Credit?
To claim the credit, you must file IRS Form 5695 as part of your tax return.
Other Important Considerations
You cannot get the solar tax credit if your solar system is being used to heat your pool.
Operation after 2021. So if you went solar in 2022 when it was 26%, you can still get the full 30%i
The panels do not need to be on your roof, ground mounted solar qualifies as well.
- Is the tax credit refundable?
- Does solar hot water or solar roof tiles qualify for the credit?
Is The Tax Credit Refundable?
The tax credit is not refundable. You won’t get any unused balance back as a check. In order to use any amount of the credit, it must be applied to your federal income tax.
Do Solar Hot Water or Solar Roof Tiles Qualify For The Credit?
You can get the solar tax credit for both solar hot water and solar electric. Since solar roof tiles are a solar electric technology, they do qualify for the credit.
If you need a new roof however underneath the tiles, this is not covered under the federal tax credit, but some states may have incentives to help save money, including to help get a new roof.
One last bit of advice, not all solar providers are honest about the solar tax credit. There are countless stories of solar providers who will mislead you about the solar tax credit and even try to take it from you.
However, here are great providers out there and if you want to be connect to them, click here.
There, you’ll also be able to get competitive quotes from reliable providers in your area.
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