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In this EcoWatch guide on the federal solar tax credit (ITC) you’ll learn:
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Disclaimer: This article is for informational purposes only. It should not be relied on for and is not intended to provide accounting, legal or tax advice.
The federal solar tax credit is a clean energy credit that you can claim on your federal returns. This tax credit is not valued at a set dollar amount; rather, it’s a percentage of what you spend to install a residential solar photovoltaic (PV) system. The tax credit is currently set at 30% of your total solar panel system installation cost.
Tax credits help to reduce the amount of money you owe in taxes. So, for example, if you claim a tax credit of $4,000, the total amount you owe in income taxes will be reduced by $4,000. It’s important to note that this is not a tax deduction, which reduces your taxable income rather than your total tax liability.
Say your solar project was quoted at $20,000. A 30% credit would save you $6,000 on your federal returns. The tax credit rolls over year after year, should the taxes you owe amount to less than the credit you earn. The tax credit does not get applied to your tax refunds.
The federal solar tax credit can be claimed by any U.S. homeowner, so long as the solar system installed is for a residential location based in the United States. (It does not have to be your primary residence.)
The system must be placed in service (in other words, it must be “turned on” and generating power) during the tax year. So, if you install and begin using a residential solar system during the year 2022, you’ll claim the credit on your 2022 tax filing. If you start a solar panel installation in December of 2022 but don’t turn the system on until January of 2023, you’ll claim the credit on your 2023 filing.
The solar investment tax credit was originally created through the Energy Policy Act of 2005, which has enjoyed bipartisan support since its inception. As originally written, the credit was set to expire in 2007. It proved pretty popular with homeowners across the country, however, prompting Congress to renew the credit multiple times.
Thanks to the passage of the Inflation Reduction Act in August of 2022, the tax credit was bumped from 26% to 30%. The credit will remain at 30% until Jan. 1 2033 when it will drop down to 26%. In 2034, it will drop to 22% before phasing out in 2035.
Here’s an overview of what is currently planned for the future of the tax credit:
|Year Placed In Service
|Federal Solar Tax Credit
Taxpayers who installed and began using a solar PV system in 2022 (and those who start using solar in 2022) can claim a federal tax credit that covers 30% of the following costs:
Your eligibility to claim this federal solar incentive on your and receive your 30% tax credit is based on whether you meet the following criteria :
The solar tax incentive is claimed as part of your annual federal tax return. Any reputable solar company should provide documentation and instructions on exactly how to claim the ITC as part of your solar installation. Below is a quick overview of what that process will look like. Though fairly simple, it’s best to consult with a tax professional when filing your return.
To claim the federal solar tax credit, follow these steps:
As a reminder, the tax credit only offsets the taxes you owe on your return. If the taxes you owe are less than the credit you earn, the credit will roll over year after year.
In addition to the ITC, be sure to file for any sales and property tax exemptions that may be available in your state. Below is a video we’ve included to help you get your tax credit. It’s for the year 2020, but instructions are still good for 2021, 2022 and 2023.
Along with the federal solar tax credit, there are a number of rebates, programs and state tax incentives that you may be eligible for depending on where you live. In some cases, these other solar incentives may impact your federal tax credit. Here’s what you should know:
Additional Resources On The Federal Solar Tax Credit
Below are some questions that the EcoWatch team commonly receives about the federal solar tax credit.
Yes, you can use your solar tax credit either against the federal income tax or against the alternative minimum tax.
As part of the Inflation Reduction Act, Congress extended the federal solar tax credit for an additional ten years. Residential solar customers can enjoy a 30% tax credit towards the cost of their installation through the end of 2032. In 2033, it will drop to 26%. In 2034, it will drop to 22%. Starting Jan. 1, 2035, the credit will no longer exist.
You can claim the solar tax credit if you are not a homeowner, but only under specific circumstances. Specifically, you must be either a tenant-stockholder at a cooperative housing corporation or a member of a condominium complex to claim the credit.
You do not have to be connected to the electric grid to claim the solar tax credit. You only need to have a solar power system that’s generating electricity for your home. That means off-grid solar homes are eligible (including their battery storage units). In most cases, solar RV homes are eligible, too.
Yes, your solar panels do not have to be installed on your roof in order for you to claim the solar tax credit. Ground-mounted solar panels may also be eligible, so long as they are generating solar energy for your home.
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