How the Federal Solar Tax Credit Works (Residential)

1. The solar tax credit is 30%

2. You must have taxable income

3. You must own your solar system- leasing a solar system does not qualify

4. The solar must be located at your primary residence or second home

5. The 30% credit runs from 2022 through 2032

6. Any unused tax credit rolls over for a total of 4 consecutive years until extinguished. 

7. It must be placed in service during the tax year

8. File Form 5695 with your tax returns

9. Ask a tax professional

1. The solar tax credit is 30%

When you install solar panels on your home, 30% of your total solar project cost can be claimed on your federal tax return.  All required materials and installation, labor, and inspection costs are eligible expenses for the Federal credit. Battery storage systems also qualify for the 30% federal tax credit and solar shingles or solar tiles.

Example: If you spend $30,000 on a solar panel system, you can receive a $9,000 tax credit from the Federal Government if you qualify.  

2. You must have taxable income to qualify for this program

A tax credit is different from a tax refund. If you are a W-2 employee and paying taxes every paycheck, you could receive a tax refund or adjust dependents to zero and  pay less federal taxes per paycheck.  If you are a 1099 self employed or you own a business, you likely would receive a credit in lieu of monies owed to the IRS.  Taxes are based on taxable income.  If you don’t have any taxable income, you can't get a credit or a refund from the IRS.   In other words, this program works for people who pay federal income taxes or have some federal tax liability.  If you don't, you won't qualify to use the program.  Best to consult with an accountant for your personal situation.

3. You must own your solar system

To get the tax credit, you need to purchase your solar. Paying cash or using a solar loan does qualify for the IRS credit.

You aren’t eligible if you have a solar lease or a Power Purchase Agreement.

4. The solar must be at your primary residence or second home

You can’t claim it on rental property on your personal taxes.

5. The 30% credit runs from 2022 through 2032

The 30% Solar Investment Tax Credit starts in 2022 and will last for ten years until December 31st, 2032.

It then drops to 26% in 2033, per the Inflation Reduction Act. 

6. Any unused tax credit rolls over

Any unused credit rolls over to the for 4 year after the initial application as long as the credit is in effect.

So if you can’t use it all in one year, the un-used balance keeps rolling over up to 4 consecutive years.

7. It must be installed before the end of the year to get credit for that year

The solar does not need approval from your utility or permitting jurisdiction to qualify.

8. File Form 5695 with your tax returns

To receive your credit for your solar energy system on your Federal Income Taxes, file IRS form 5695 with your taxes.

9. Ask a tax professional

Always consult your tax professional for tax advice on solar incentives.

The only information that you should rely on is from your accountant or tax preparer.

The solar tax credit is a significant incentive for going solar, and it’s essential to understand how it works so you can take advantage of the savings.

 

How the Federal solar tax credit works (Business)

To be eligible for the business IRS Tax Credit (ITS), the solar panel system must be:

1.  Used by a business subject to U.S. federal income taxes (i.e., it cannot be used by a tax-exempt entity like a charity)

2.  Located in the United States or U.S. territories (though can only be used against federal income tax obligations)

3.  Solar panel systems must use new and limited previously used equipment

4.  Not used to generate energy for heating a swimming pool.

A solar project is considered to have commenced construction if:

• At least 5% of final qualifying project costs are incurred. Expenses have to be “integral” to generating electricity, and equipment and services have to be delivered (or delivered within 3.5 months after payment).

• Or, “physical work of significant nature” is commenced on the project site or on project equipment at the factory. Physical work has to be “integral” to the project. Preliminary activities on site (e.g., clearing the site or building a fence or an access road) do not count as “integral.” The project does not require proof of continuous work if the system is placed in service within four years.

A business with a solar panel system placed in service starting in 2023 depreciation values have changed.  The percentage of capital equipment that can be expensed immediately drops 20% per year (e.g., 80% in 2023 and 60% in 2024) until the provision drops to 0% in 2027.

If you would like us to help you get 3 bids from highly reputable solar companies, please fill out the contact form below.  We try to reply as soon as possible, but please give us up to 24 hours to reply in case we are busy with other clients.  We hope we can help you find the right system for the right price from a reputable company with full disclosures.  Solar is a very wise investment done correctly. We have seen first hand deceptions and don't feel it's fair so we are doing our part to get the correct information out.

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