Since 2006, the federal government has incentivized homeowners to switch to solar through the solar investment tax credit (ITC), also known as the federal solar tax credit.
So, what do you need to know about the solar ITC? In this article, we will discuss the basics of what the ITC is, how it works, and answer some of the questions you may have.
What is the solar investment tax credit?
The solar investment tax credit (ITC), is a credit you claim on your federal income taxes. It allows you to deduct 30 percent of the total cost of installing a solar energy system from your federal taxes.
The ITC applies to both residential and commercial systems, and there is no cap on its value.
How does the solar investment tax credit work?
You can claim the federal solar tax credit as long as you are a homeowner in the U.S. and own your solar panel system. The credit lowers your federal taxes. So, if you spend $20,000 on a system, you can subtract 30 percent of that, or $6,000, from your federal taxes.
Was the investment tax credit extended?
The solar ITC timeline has been extended to 2035 unless Congress chooses to renew it when the time comes.
As written in the Inflation Reduction Act of 2022, the tax credit will begin at 30% and decrease to 26% in 2033 and 22% in 2034. If you’ve already installed a system in 2022, and if you haven’t already claimed it, your tax credit has increased from 22% to 30%.
Frequently Asked Questions
- Will there be new solar incentives in 2022?
- Is the solar tax credit worth it?
- Can the solar tax credit be carried forward?
- Can the solar tax credit be claimed more than once?
- How to file for the solar tax credit
- Who qualifies for the solar tax credit?
- When does the solar tax credit expire?
- How does the solar tax credit work in california?
- What is the solar tax credit in 2023?
- How does the solar tax credit work for businesses?
- Does the solar tax credit work for rental properties?
- Does the solar tax credit work with roof replacements?
- Is the ITC a tax credit or a tax deduction?
- Solar tax credit vs rebate
- Does the solar tax credit work for installing additional panels?
Will there be new solar incentives in 2022?
Solar PV systems installed in 2020 and 2021 were eligible for a 26% tax credit. In August 2022, Congress passed an extension of the solar ITC, raising it to 30% for the installation of which was between 2022-2032.
Is the solar tax credit worth it?
Yes! Most, if not all, of the costs associated with installing solar panels are eligible to be covered by the federal solar tax credit. Qualified costs include:
- Equipment: The cost of the solar panels, racking, wiring, and inverters.
- Contractor labor: The cost of labor associated with site preparation, installation, and planning, as well as the cost of any permitting fees and inspections.
- Sales tax: Any sales tax associated with the above costs is also covered by the tax credit.
If you’re going to be installing solar any time in the next 10 to 12 years, it is absolutely worth it to take advantage of this tax credit.
Can the solar tax credit be carried forward?
Yes. You can claim the credit once and it will roll over to the next year if the taxes you owe are less than the credit you earn. The credit is a deduction, not a refund.
For example, if you install a solar panel system for $20,000, you’ll be discounted $6,000 on your federal tax return. If you owe less than $6,000 on your taxes, the remainder of the credit will roll over to your federal income taxes the following year. You can roll over the unused tax credit for as long as the incentive is being offered.
Can the solar tax credit be claimed more than once?
Technically, if you own a house, you cannot claim the solar tax credit more than once.
Note that you may be eligible for claiming the tax credit more than once in the case that you own multiple residential properties, all having solar energy systems. Although, it would be wise of you to consult with a tax specialist to confirm this and learn of any underlying intricacies and conditions.
How to file for the solar tax credit:
To claim the credit, you must file IRS Form 5695 as part of your tax return. You'll calculate the credit on Part I of the form, and then enter the result on your 1040.
If you failed to claim the credit in a previous year, you can file an amended return to claim the credit.
Who qualifies for the solar tax credit?
Most U.S. citizens will qualify for the solar ITC. But, there are some cases where you might not be eligible. The requirements are as follows:
- The system must be installed between 2022 and 2034.
- You must be the owner of the solar panel system.
- You must have a taxable income.
- The solar system must be installed at your primary or secondary residence.
- It must be claimed on the original installation of the project.
When does the solar tax credit expire?
The tax credit expires starting in 2035 unless Congress renews it.
How does the solar tax credit work in california?
California offers statewide solar incentives, utility company credits and the federal solar tax credit. California solar tax credits can save you a hefty sum on solar panel installation. Be sure to ask your tax professional about statewide incentives and utility credits to ensure you are saving the maximum amount of money you can.
What is the solar tax credit in 2023?
The solar tax credit will continue to be 30% until 2032. In 2033, it will drop down to 26%.
How does the solar tax credit work for businesses?
There are two tax credits available for businesses that purchase solar energy systems:
- The investment tax credit (ITC) is a tax credit that reduces the federal income tax liability for a percentage of the cost of a solar system that is installed during the tax year.
- The production tax credit (PTC) is a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system’s operation. It reduces the federal income tax liability and is adjusted annually for inflation.
Generally, project owners cannot claim both the ITC and the PTC for the same property, although they could claim different credits for co-located systems, like solar and storage.
Does the solar tax credit work for rental properties?
You can't claim the residential solar credit for installing solar power at rental properties you own. You can, however, claim it if you also live in the house for part of the year and use it as a rental when you're away.
If you choose to do that, you will need to reduce the credit you receive for a vacation home or rental property to reflect the time you're not there.
Does the solar tax credit work with roof replacements?
Yes. If you own both the home and the solar panels, you can still claim the solar tax credit when doing a roof replacement and solar installation.
Is the ITC a tax credit or a tax deduction?
The solar ITC is a credit you claim on your federal income taxes, not a tax deduction. Instead of creating a return, it reduces what you owe in taxes.
Does the solar tax credit work for installing additional panels?
No. The credit can only be claimed on the original installation of the solar equipment.
Now is The Time To Claim Your Solar Tax Credit
If you’re considering installing solar, right now is the time to do it. Just because you can wait 10 years and still receive your tax credit, doesn’t mean you should. It’s almost always a good idea to make an investment sooner rather than later. Installing solar as soon as possible means you start saving money sooner, stop paying high electricity bills, and start putting your money towards what is truly important to you.
Going solar will never be a better investment than it is right now. State and other solar incentives throughout the country are at an all time high. They could expire well before the federal tax credit, which would mean you save less money and spend more on your installation, taxes, and utilities.
Ready to install your solar and get the federal solar tax credit? Let us help!
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