Many people who go solar and have solar systems on their property don’t know they can claim tax for it. Therefore, you can earn money just because you own a solar panel system.
Also, your home is much more self-sufficient and cost-effective with a solar panel system; a tax credit for solar energy is just a bonus.
🔑 Key aspects of the federal solar tax credit
1️⃣ The federal solar tax is an amount you can claim back from the government for owning a solar system.
2️⃣ You can claim back up to 30% of the tax.
3️⃣ You have to legally own a solar system to claim the tax meaning the solar energy system has to be in your name.
🏦 How The Solar Tax Credit Works
You can apply to claim a percentage of the cost of a new photovoltaic solar system from the federal tax credit. But, you must have the system installed within that specific tax year to qualify for the solar tax credit.
So, for example, if you install the system in 2020 or 2021, you can claim 26% of the tax credit for those years. After that, in 2022, you can claim up to 30% of the tax credit.
You can apply for your claim of the solar tax credit for as long as you own a solar power system. However, if you sign a lease or any other document that states you are not the system owner, you can’t claim the tax anymore.
Another great thing about the solar energy tax credit is that it has no federal income limit.
Therefore, if you own a solar cell system in the United States, you can claim the credit, irrespective of your yearly income.
🪙 Are You Eligible To Claim Federal Solar Tax?
To be eligible for the energy credit, there are a few requirements you have to meet. For you to claim this tax, the solar installation must be complete between 1 January 2017 and 31 December 2034.
In addition, the solar system must also be inside a home or residence that you own in the United States.
You can only claim this tax when you have proof that you bought the system in cash or through financing. However, you cannot claim the tax when you lease the system.
The solar system must also be new or used for the first time to make you eligible to claim federal solar tax. However, if you receive other incentives from the state, it could influence your approval for the solar tax credit.
Some incentives and subsidies can negatively influence your chance to claim your share of the federal solar tax credit. For example, your Electric Utility can provide you with a one-time solar system installation subsidy.
Then, the utility rebate decreases the solar system’s costs and reduces the size of your claim for the federal solar tax credit.
🤷 What Is Covered In The Tax Credit?
You will have 30% leverage as a homeowner, which will cover a few things. First, the cost includes solar panels. In addition, your labor costs for any installation, permitting fees, and inspection costs.
Then, the 30% leverage of the solar investment tax credit covers your developer fees. Finally, it includes additional material or solar equipment, like wiring and mounting hardware.
☝️ How Can You Claim The Federal Solar Tax Credit?
To claim your solar tax credit, you must file an IRS form 5695 when you install the solar system.
A city inspector will usually come and deem everything in order and then give you the necessary forms.
If you file for 2023, your tax will probably pay out in 2024, as the inspection will have to pass by 14 August.
💰 What Is The Value Of The Solar Tax Credit?
In 2022 the tax covered up to 30% of the cost of your solar system. However, it may shock you that you may claim no maximum dollar amount as a tax credit for your solar systems.
If you install your system between 2022 and 2032, you can claim back 30%. For 2033 you can claim 26%, 22% for 2034, and if your project finishes in 2035 or later, you can’t claim at all.
🗓️ When Can You Claim For Your Credit?
You can put in your claim for the solar tax credit when you have other taxes you owe in the year.
You cannot claim the solar tax credit alone. But you can carry on the unused amount to the next year when you have other taxes you can claim.
The solar tax of 30% is not refundable by any means.
⏰ How Long Can You Claim Your Solar Tax Credit?
You can only begin to claim your solar tax credit once you have installed your solar system. But, once you claim, you can leave that amount to be carried over to the following year for up to five years.
You can then claim taxes every once a year. In addition, if you own more than one house or property, you can claim the solar tax credit for all homes with solar systems.
➕ Additional Things You Should Know
The process for you to claim the federal tax credit can be complicated and time-consuming. Thus, it would be best to familiarize yourself with this process’s procedures, steps, and requirements beforehand.
As a result, you can prepare yourself for any concerns and questions they might have. So, if you want to claim the tax credit, you should know the following:
- The state does not require you to be a homeowner to claim this tax. For example, suppose you are a tenant who contributes to the cost of the solar system. In that case,
- You could claim the tax if you installed the system in your vacation home. The system doesn’t have to be in your primary residence to claim. However, you can’t claim if the system is on a rental you own.
- A solar system does not necessarily have to integrate into your existing electric grid for you to claim the residential solar tax credit. You can claim that it is generating power for usage at your residence.
- You must install your solar panels on your property to claim tax. Many wonders if they bought the solar system and haven’t installed it. If they can reason, they cannot until you have installed the system in the home.
- You can claim the tax when the house you bought has a solar system installed. However, it would be best to move in before the end of the tax year. Otherwise, you can’t claim for that specific year. You can claim for the year you are in already.
❓ Other FAQs
How Does The Federal Solar Tax Credit Work For Businesses?
There are two business options: investment tax credit and production tax credit. Unfortunately, a company can’t claim both and must choose one for each property.
How Does Solar Tax Credit Work If I Get A Refund?
Unfortunately, the solar tax credit is non-refundable. So you won’t get a refund on the tax amount exceeding the tax liability. However, you can get a tax refund if there is an overpayment during the year.
Why Am I Not Getting The Full Solar Tax Credit?
To get the total amount of that solar panel tax credit, you must owe at least as much in taxes as the amount of the credit.
🔑 Key Takeaways
The federal solar tax credit motivates clean energy by supporting solar photovoltaic system installation.
1️⃣ The solar tax credit has no income limit, so this renewable energy tax credit can be claimed no matter what you earn per year.
2️⃣ Solar tax credits are non-refundable, but you may get a refund on your federal tax return if there is an overpayment during the year.
3️⃣ To claim the credit, any tax professional will tell you that you must own or contribute to the costs of the solar system.
Visit our solar tax credit hub for any other incentive and rebate questions you may have.