The solar tax credit is a great incentive for anyone who’s considering going solar. It can save you money on your electricity bills and help the environment at the same time!
What Is the Solar Tax Credit?
The solar tax credit is a federal incentive for business owners and residential homeowners to install qualifying solar energy systems on their homes or business properties.
WHAT IS THE SOLAR TAX CREDIT?
The Federal Solar Investment Tax Credit, available to individuals and businesses, can be claimed on your taxes for a portion of the cost if you install a solar photovoltaic (PV) system. The IRS has not established any clear rules regarding what constitutes “in service,” but they have compared it to systems put in place during that year’s completion or installation. The Solar Investment Tax Credit not only helps the environment by reducing reliance on non-renewable energy sources, but it also lowers your power costs by making you more self-sufficient!
History of the Solar Investment Tax Credit?
The Investment Tax Credit was initially part of the Energy Policy Act of 2005 and was implemented to provide tax incentives for energy production. It has been extended every two years since its inception.
The Solar Investment Tax Credit will be available to homeowners until 2023. The Federal Solar Tax Credit was expected to decline in 2021 and remove homeowners entirely by 2022. Still, after months of negotiations, the COVID recovery bill now includes an ITC extension!
- 2016 – 2019: The tax credit is 30% of the cost of the system.
- 2020-2022: Owners of a newly installed solar energy system can deduct 26% of the cost from their income taxes.
- 2023: From their taxes, owners of a new solar energy system can deduct 22% of the system’s cost.
- 2024 and beyond: No federal credit is available for residential solar energy systems, but businesses may take advantage of a 10% tax credit.
How does the solar tax credit work?
The federal solar tax credit is one of the most popular financial incentives for individuals to install solar panels. The income tax you owe is reduced dollar-for-dollar to 26%. Many homeowners believe they are ineligible for the solar credit because they don’t have an end-of-year additional tax bill.
But that is not the case. The federal solar tax credit can help you recoup any taxes you’ve already paid out of your weekly or bi-weekly wage. You can also roll over any remaining credits to future years if you don’t have enough tax liability to claim the credit in the current year.
#Who is Eligible to Claim the Solar Tax Credit?
Generally, you can qualify for a tax credit if you are an individual, company, business, or organization that installs a solar energy system. The IRS says that this credit applies to both residential and commercial systems.
You must be the owner of the solar panel system to qualify for the tax credit, meaning if you lease your system, you are not eligible.
There are a few more rules, but these are the most important.
- The solar PV system must be installed between January 1, 2006, and December 31 of 2023 (as previously stated, the credit amount will decrease each year).
- The solar panel system must be placed at a US property, whether the homeowner’s primary or secondary residence.
- The ITC is only available to homeowners who buy the solar PV system (i.e., they paid for it in cash or with a loan). The homeowner does not qualify for an ITC if they lease the system or enter a power purchase agreement for solar electricity.
- The solar PV system is either brand-new or has never been utilized before. The credit may only be taken on the “original installation” of the solar equipment, not on subsequent installations.
How do I claim the solar panel tax credit?
Homeowners should be proactive and ensure that their accountant or tax professional knows they went solar the previous year. If not, homeowners will need to educate themselves about how residential ITC works before filing taxes on this credit.
When filing your tax return in 2021, you must complete form 5695 to claim the solar investment tax credit. Part 1 of Form 5695 will tell you how much money you are qualified for and when you enter it on line 7 of your 1040.
Is the solar investment tax credit available for batteries?
The Internal Revenue Service (IRS) specifies that battery installations for which “all energy used to charge the battery can be effectively assured to come from the Solar Energy System” are eligible for a full tax credit. That means if you install your Tesla Powerwall or other lithium-ion system and make sure it charges exclusively with solar electricity, then 26% off its total cost will be yours!