Guide to the Solar Federal Tax Credit
If you are a homeowner, you may be interested in installing a rooftop solar system to save money on your electricity bills and decrease your carbon footprint. In addition to the many financing options available from solar installers and third party lenders, you may be able to lower the effective upfront cost of your solar system through the the solar federal tax credit (also known as an Investment Tax Credit). In this guide, we will explain what the tax credit is, what it covers, who is eligible, and how to claim it.
What is the solar federal tax credit?
The solar federal tax credit is a financial incentive provided by the federal government for homeowners who invest in solar energy systems for their homes. The credit allows homeowners to subtract a portion of the cost of installing solar panels from their federal taxes. The credit is a dollar-for-dollar reduction in the amount of federal income taxes you owe. The current tax credit allows homeowners to claim up to 30% of the total cost of their solar panel system. For example, if you spend $10,000 on a solar panel system, your tax bill could be reduced by $3,000.
What does the solar federal tax credit cover?
The solar tax credit can be used to cover the costs of solar systems installed at homes located in the United States which are used as a primary or secondary residence by the taxpayer. The credit is only applicable to costs associated with the original installation of the system.
Expenses covered by the credit include: Solar panels Solar equipment (wiring, mounting hardware) Labor Solar power storage equipment (solar batteries) Sales tax (if applicable)
Solar systems installed through leases or PPAs are not eligible.
How do I claim the tax credit?
To claim the solar tax credit, you must fill out the IRS Form 5695 and attach it to your federal tax return. The IRS provides instructions for filling out the form.
It is important to note that tax credits are non-refundable, meaning that if the credit exceeds the amount of tax you owe, you do not receive a cash refund for the difference. For example, if you owe $3,000 in federal income tax and you qualify for a tax credit worth $4,000, you will not receive a refund of the extra $1,000. You can, however, carry over the unused tax credits to future tax years.
If you need more information on the tax incentives available for residential solar systems, you can find more resources on the Office of Energy Efficiency and Renewable Energy website.
This information is provided for informational purposes only. WattBuy is not a registered financial institution. You should always consult with your tax advisor or financial advisor before determining your potential tax liability, costs, or savings.