Disclaimer: This article provides an overview of the federal solar tax credit and other residential solar energy system incentives. We’re solar experts, not tax professionals, and this article does not constitute professional tax advice.
Going solar is a great opportunity to save on monthly energy bills and reduce your dependence on your utility company. The federal tax credit for going solar is the best incentive offered by the government, and we’ll go into more detail on how to claim it.
First of all, a tax credit is a reduction in the amount of taxes you owe, according to the IRS. All solar installations before the end of 2022 will qualify for this incentive.
The typical homeowner that goes solar energy pays about $20,000 for a typical solar energy system. So, in this example, with the solar ITC of 26%, It will reduce your tax liability by $5,200. That’s quite a bit back from your investment already! Taking advantage of this credit is easy as A-B-C if you know how to claim it.
Solar Tax Credit Eligibility
According to the U.S. Department of Energy, to qualify for the solar federal tax credit, you must meet all of the following requirements:
- You must own your home.
- The solar panel system must be new.
- You must own your solar panels. (Purchase or Finance)
That last requirement isn’t easy to understand, since some homeowners may choose to lease their solar systems through third-party companies. This means that the leasing company gets to claim the tax credit instead of you. Anyone that buys their panels outright or finances them with a loan will get to claim the tax credit.
How Do I Claim The Solar Tax Credit?
To claim the solar tax credit, you must file IRS Form 5695 as part of your regular tax return. You can calculate the amount of credit on the form, and enter the result on your individual tax Form 1040.
If last year’s taxes ended up with a bigger credit than the income tax due, you won’t get money back from the IRS. Instead, you can carry the credit over to the next year. It’s important to understand that this is a tax credit and not a rebate or deduction.
Tax credits offset the balance of tax due to the government (therefore, if you don’t owe anything, you can’t take advantage of it).
If you are unable to claim the solar tax credit, don’t worry! You can file an amended return.
The current residential solar tax credit is set to expire at the end of 2023 after several extensions. So, now is the best time to explore your solar energy options to take advantage of the Solar ITC.
If you wait to purchase solar now, you might end up actually paying more just because of these government incentives. Don’t Wait! Call us today and we can help you get started while you can get the most back from your investment.