Solar Tax Credit
Understanding the Solar Tax Credit: Residential Clean Energy Credit
The United States Congress voted to extend the solar tax credit in December 2020. The residential clean energy credit provided a 26% tax credit for residential solar systems installed before the first of January 2023. However, the Inflation Reduction Act of 2022 has been effectively extended, increased the solar tax credit, and renamed the Residential Clean Energy Credit.
The Residential Clean Energy Credit provides a 30% credit until 2034.
All About the Residential Clean Energy Credit
For every $10,000 spent on a solar system, the buyer is eligible for a $300 federal tax credit on their annual tax return.
The 10-year Residential Clean Energy Credit provides a federal government tax credit of 30% off the cost of any solar power equipment installed between 2022 to 2032.
The newly renamed 10-year extension to the previous Solar Tax Credit means that individuals who install a new solar energy system between 2022 and 2032 will receive a federal government tax credit of 30% of the cost of the installed solar power equipment.
As a tax credit, it will be rewarded as a reduction in the amount of tax an individual will owe at the end of the year.
In 2033, the solar tax credit is set to drop to 26% and then experience another reduction to 22% in 2034.
How much money can be saved using the updated and extended Solar Tax Credit?
To determine how much you will save with the solar tax credit:
- Determine your solar system’s estimated costs.
- Multiply the estimated costs by 0.30 to determine your final savings.
- $15,000 solar system equipment
- $15,000 x 0.30 = $4,500
- Total savings off your federal taxes: $4,500 Residential Clean Energy Credit
How do I claim the Residential Clean Energy Credit?
You’ll claim the Residential Clean Energy Credit when you file your federal taxes. You’ll need to fill out IRS Form 5695 to claim the credit.
What expenses/costs can you claim to receive the Residential Clean Energy Credit?
You can claim the following costs and expenses to gain the Residential Clean Energy Credit:
- All solar equipment
- Consulting fees related to solar
- Freight shipping of all solar equipment
- Engineer expenses
- Electrician fees
- Tools bought/rented
- Screws, wiring, nails, bolts, etc.
- Rental or purchased equipment such as scaffolding
- Permit services fees
- Permit fees
Who is eligible for the federal solar tax credit?
You must meet the following criteria to claim the Residential Clean Energy Credit:
- Installation of the solar PV system must take place between January 1, 2006, to December 31, 2034
- The installed solar system must be in your primary residence located within the United States
- You own the solar PV system that you purchased with cash or financing (you cannot lease the system and claim the solar tax credit).
- The solar PV system is new and has never been used before.
Frequently Asked Question
Q: Can I claim the solar tax credit if I do not own the home?
A: You cannot claim the tax credit if you are a renter. You must be the owner of the solar system to claim the credit.
Q: Can I claim the solar tax credit if I install the system in a vacation or second home?
A: Yes, you can claim the solar tax credit for a vacation or second home. However, you cannot claim the tax credit if you install the solar system in a rental home. With a rental home, you might be eligible for the business ITC under IRC Section 48. See 26 U.S.C. § 25D(d).
Q: Am I eligible for the tax credit if the system is not connected to the electric grid?
A: Yes, you can still claim the solar tax credit if your system is not connected to the electric grid. All that is required is that the system produces electricity for your primary residence.
Q: Can I claim the solar tax credit if the solar panels are not mounted on my roof?
A: Yes, you can claim the solar tax credit if your solar panels are not mounted directly on your roof. It does not matter where the solar panels are located if they generate electricity solely for your primary residence.
Q: Can I use the solar tax credit on my taxes if I financed my solar system?
A: Yes, you can still claim the solar tax credit if you financed the solar system. You can also claim added expenses such as interest and any extended warranty expenses.
Q: Am I eligible to claim the solar tax credit if I bought the panels but have not had them installed yet?
A: No, you cannot claim the credit until the system is placed in service.
Q: How do I claim the solar tax credit?
A: Ensure you are eligible for the solar tax credit and then complete and attach IRS FORM 5695 to your federal tax form.
To qualify for the Residential Clean Energy Credit, you must own the system (it can be financed but not leased). Installation of the solar system must take place between 2022 and 2034.