federal solar tax credit
WHAT IS THE SOLAR INVESTMENT TAX CREDIT?
The United States federal government subsidizes the purchase and installation of solar power generating systems with a general federal solar tax credit. The renewable energy tax credit is available to both residential homeowners and commercial businesses. It also significantly reduces the payback time for solar power investment.
- The federal solar investment tax credit (ITC) is a tax credit that can be claimed on federal income taxes for 30% of the cost of a solar photovoltaic (PV) system.
- The system must be placed in service during the tax year it is claimed and generate electricity for a home located in the U.S. Although the increased 30% tax credit was approved in August of 2022, that rate is retroactive to systems placed into service any time that calendar year.
- The 30% tax credit applies to the total cost of a residential solar energy system, including labor and equipment.
- The tax credit applies to solar panel batteries. As of January 1, 2023, that will include standalone backup batteries.
There is no maximum amount that can be claimed. - If you don’t use all the tax credit the first year, the remaining amount can be rolled over to the following year.
WILL THERE BE SOLAR TAX CREDITS IN 2024?
In August of 2022, the federal government renewed and extended the Solar Investment Tax Credit as part of the Inflation Reduction Act of 2022 raising the rate from 26% to 30% and ensuring that the credit will be in place at that level until the end of 2032. The legislation is retroactive to include solar energy systems that have been activated since January 1, 2022.
AM I ELIGIBLE TO CLAIM THE SOLAR INVESTMENT TAX CREDIT IN 2022?
You might be eligible for the 30% solar investment tax credit if you meet all of the following criteria:
- Your solar PV system was ‘placed in service’ after January 1, 2022.
- The solar PV system is located at a residential location in the U.S. (but not necessarily your primary residence).
- The 30% tax credit applies to the total cost of a residential solar energy system, including labor and equipment.
- You own the solar PV system ( i.e., you purchased it with cash or through solar financing*. Solar leasing or solar purchase agreements (PPA) do not qualify for the 30% tax credit.)
- The solar PV system is new or being used for the first time. The ITC can only be claimed on the “original installation” of the solar equipment.
* A solar loan is a loan that is used towards the purchase of a solar power system for your home. Solar loan financing allows you to avoid the steep payments upfront while also giving you immediate ownership of your system. Like a regular loan, it is paid off in monthly payments with an applied interest rate. However, since you are considered the owner of the system, you are entitled to the benefits such as tax credits and rebates.
WHAT IF I DON’T OWE TAXES?
You may be asking yourself, “How does the solar tax credit work if I don’t owe taxes?” Anyone who does not owe federal income taxes will not be able to benefit from the solar tax credit in the current year. And, if you’re on a fixed income, retired, or only worked part of the year, you may not owe enough taxes to take full advantage of this solar tax credit.
While many solar panel systems qualify for the solar panel tax credit, there are some that do not. Consult a qualified tax professional to understand any tax liability or eligibility for any tax credits that may result from the purchase of your solar system.**
Solar Tax Credit FAQ's
This is a nonrefundable tax credit, meaning you will not get a tax refund for the amount of the solar tax credit that exceeds your tax liability. However, you can carry over any unused amount of the solar tax credit to the next tax year.
Yes. The tax credit can be used against either the federal income tax or the alternative minimum tax credit.
File Tax Form 5695 with your tax return.
AllSolar Energy does not provide tax advice. Be sure to speak with a qualified tax professional if you have questions about your personal situation.
The Federal Solar Tax Credit was just extended a decade to 2032. It will drop to 26% in 2033.
**Subject to customer’s eligibility (including sufficient taxable income) for federal solar investment tax credit. Not all homeowners will be eligible for the full estimated federal tax credit. AllSolar Energy, Inc. is not qualified to provide tax advice. Federal tax credits can change or end at any time. Please consult a tax professional to understand any tax liability or eligibility for any tax credits that may result from the purchase of solar photovoltaic and/or energy storage device(s).
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