The Federal Solar Tax Credit (ITC)
Southern Californians looking to install solar panels at their homes will need to understand how the federal solar tax credits work to maximize their savings. Knowing how the federal solar tax breaks work can help homeowners get the best deal possible when purchasing solar panels and help cover some of the installation costs.
- UPDATE! -
The Federal Solar Tax Credit increased to 30%!
Big news! You can save even more by going solar now. As part of the Inflation Reduction Act, signed into effect by President Joe Biden on August 16th, 2022, residential solar users can take advantage of the original 30% Solar Investment Tax Credit through 2032!
The Investment Tax Credit, sometimes knows as the "solar tax credit" or "ITC" is an incentive program offered by the U.S. government through the Internal Revenue Service (IRS) to encourage Americans to install energy-efficient solar panels on their homes. Currently, there are crucial deadlines in place for the credit to not only reduce but eventually expire completely. So it's important that you act now to ensure that you don't miss out on a great opportunity to save on your solar installation!
What is the Federal Solar Tax Credit (ITC)?
Since 2005, homeowners have been encouraged by the federal government to "go solar" on their homes through the solar investment tax credit (ITC) which is sometimes knows as the "federal solar tax credit." California homeowners looking to install a new solar panel system for their homes or property in 2022 are eligible to receive a tax credit equal to 26 percent of the cost of your solar home energy installation project on your existing tax bill. This can lead to big savings. For an average system, this can add up to almost $8,000 or even more for larger systems.
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Origingally set at 30%, the tax credit decreased in 2019 to 26%, but is currently legislated to stay at 26% for solar projects that are completed and operational between 2021-2022. Next year, the federal solar tax credit will reduce further to 22%, which is still a great incentive for those wanting to switch to solar, but not as enticing as the current credit. The tax credit program is scheduled to expire January 1, 2024.
Determining Eligibility for the Federal Solar Tax Credit
Make sure that you are eligible and can take full advantage of the federal solar tax credit by reviewing the following key requirements:
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Your solar system was installed within the year that you are claiming the federal solar tax credit.
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Make sure that you have sufficient tax liability with the IRS to offset costs (see our FAQs section below).
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You are the owner of your solar system. Financed systems are also considered eligible.
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If your solar installations requires a new roof, some, but not all of these costs are covered by the ITC. Contact a tax professional to determine your eligibility.
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Solar Battery storage systems are also covered by the tax credit as long as teh energy that is being stored is generated from a solar panel system.
How To Claim Your Solar Tax Credit
Steps to Claiming the ITC
Claiming the Federal Solar Investment Tax Credit (ITC) is relatively straight-forward. By downloading form 5695 and making some basic calculations you'll be on your way to saving on the overall cost of your solar system.
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Sunny Solar Power recommends that taxpayers consult a professional tax expert during this process to ensure that you are correctly claiming the ITC.
Download form 5695 from the IRS.
Calculate the credit on Part 1 of the form being sure to file your system as "qualified solar electric property costs." On line 1, use the final value of your solar contract to list your projects' total cost.
Calculate lines 6a and 6b.
Calculate any tax liability limitations on line 14 by using the IRS's worksheet.
Calculate lines 15 and 16, being sure to enter the exact number from line 15 on your Schedule 3 (form 1040) line 5.
Frequently Asked Questions about the Federal Solar Tax Credit
Here we cover some of the most commonly asked questions regarding the solar investment tax credit (ITC).