It is a dollar for dollar reduction in your federal tax bill and all costs associated with your solar panel installation like labor, assembly, wiring and system installation are eligible for the federal tax credit.
No Maximum On The Federal Solar Tax Credit
What’s nice about the federal solar tax credit is there is no cap on how big of a credit you can claim. You can get a 30% credit regardless of the cost or size of your system.
According to EnergySage, the average person saved approximately $5,000 on the cost of going solar as a result of the ITC in 2017. Of course, your tax credit will vary depending on the total cost and when you install your solar system.
But isn’t the Solar Tax Credit Expiring?
The SEIA successfully advocated for a multi-year extension of the credit in 2015, but it is going away soon. It is important to note the tax credit is still available to homeowners in some form through 2021.
Because the credit is going away, and its value is being stepped down over the next few years NOW is the time to go solar to maximize its value.
Important Timeline and Facts About The ITC Solar Tax Credit Expiration
- The 30% federal tax credit is still available for solar systems placed in service by 12/31/2019. So now is the time to maximize this available credit.
The tax credit will begin to reduce after this date as follows:
- 26% for systems placed in after service by 12/31/2019 and before 01/01/2020
- 22% for systems set in service after by 12/31/2020 and before 12/31/2021
- 01/01/2022 and beyond: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems after 2021.
- Additional state, local and utility incentives exist in many areas, further lowering the net cost of your investment.
How Does The Solar Tax Credit Work?
If you pay $15,000 to install solar panels on your home, your credit will be $4,500.
If at the end of the year when you file your taxes, you owe $6,000 in taxes, the solar tax credit reduces your tax liability to $1,500.
It is important to note that this is, in fact, a credit and not a rebate. You need to have enough tax liability to use all 100% in a single year. The good news is even if you don’t owe enough taxes to claim the full credit in one year, it’s ok because you can carry over the remaining credit to the following year and beyond for as long as the tax credit is in force.
Please note: If you don’t make enough money to pay federal taxes, on a fixed income, retired, or only worked part-time; you may not owe enough taxes to take full advantage of this credit.
But What If I Typically Get A Tax Refund Each Year?
You can have your employer adjust your withholdings on your paycheck, so you take home more money and would owe the IRS when it comes time to file in April. Then you can use your available solar tax credit to pay your tax liability, or If you already paid taxes by withholding it from your paycheck, the federal government will apply the tax credit to a tax refund.
How Do I Know If I Am Eligible To Claim The Federal Solar Tax Credit?
If you meet the following guidelines you may be eligible for the tax credit:
- You own, purchased or financed your solar PV system (It is not leased or PPA)
- The solar system is on your primary residence or located on a property you own and live in it for part of the year.
- The solar PV system is new and can only be claimed for the original installation of the solar equipment.
How Do I Claim The Solar Investment Tax Credit?
You can claim the credit for solar when filing your yearly federal income tax return. You or your accountant will complete IRS Form 5965 to verify your qualification for the renewable energy tax credits and add the information from the 5965 form to your tax filing.
Disclaimer: We realize the solar tax incentive is confusing and is one of the primary things our customers have questions about please note we are not licensed to give tax advice, and we urge you to consult with a tax professional on all tax matters.