If you are a U.S. taxpayer interested in installing a solar system in your primary home, the federal solar tax credit could save you 30 percent on the solar system cost. If you’ve already installed a system in previous years, consult your tax advisor to determine if you are now eligible for an increased credit rate. The following discussion is also subject to the disclaimer below. You should read the disclaimer carefully.
Our guide below may help show if you potentially can save money for your solar system through the federal solar tax credit.
What is a tax credit?
A tax credit is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe. For example, claiming a $1,000 federal tax credit reduces your federal income taxes due by $1,000.
What is the Federal Solar Tax Credit?
The federal solar tax credit applies to the cost of solar systems installed by taxpayers for their primary residences in the United States. The incentive amount is equivalent to a percentage of the eligible costs. When the Inflation Reduction Act was signed on August 16, 2022, the Investment Tax Credit (ITC) expanded. Solar PV systems installed in 2020 and 2021 are eligible for a 26% tax credit. In August 2022, Congress passed an extension of the ITC, raising it to 30% for the installation of which was between 2022-2032. (Systems installed on or before December 31, 2019 were also eligible for a 30% tax credit.) It will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. The tax credit expires starting in 2035 unless Congress renews it. There is no maximum amount that can be claimed but the amount you claim cannot exceed your tax liability.
What expenses are included?
The following expenses are included:
- Energy storage devices that have a capacity rating of 3 kilowatt-hours (kWh) or greater (for systems installed after December 31, 2022)
- Solar PV panels or PV cells (including those used to power an attic fan, but not the fan itself)
- Contractor labor costs for onsite preparation, assembly, or original installation, including permitting fees, inspection costs, and developer fees
- Balance-of-system equipment, including wiring, inverters, and mounting equipment
- Sales taxes on eligible expenses
Who can claim the federal solar tax credit?
You might be eligible for this tax credit if you meet the following criteria:
- Your solar PV system was installed between January 1, 2017, and December 31, 2034.
- The solar PV system is located at a residence of yours in the United States (if you are claiming energy storage devices on your tax credit, the solar PV system must be located at your primary residence in the U.S.).
- You own the solar PV system (i.e., you purchased it with cash or through financing but you are neither leasing the system nor paying a solar company to purchase the electricity generated by the system).
- The solar PV system is new or being used for the first time. The credit can only be claimed on the “original installation” of the solar equipment.
How do other incentives I receive affect the federal tax credit?
For current information on incentives, including incentive-specific contact information, visit the Database of State Incentives for Renewables and Efficiency website.
How do I claim the Federal Solar Tax Credit?
- Consult with your tax advisor to determine if you are eligible for the credit and have or will have sufficient tax liability to utilize the credit.
- Complete and attach IRS Form 5695 to your federal tax return. Instructions on filling out the form are available here. Complete and save the Manufacturer’s Certification Statement for your personal records in the case of an audit.
You should always consult your tax professional to determine your eligibility for tax credits given your individual situation. Hysolis LLC does not guarantee any tax credit based on our products, and any information we provide is for educational purposes only and should not be considered legal advice. It does not constitute professional tax advice or financial guidance. It should not be used as the only source of information when making purchasing decisions, investment decisions, tax decisions, or execution. Consult a tax professional to evaluate your eligibility.