Federal Solar Tax Credit Guide for Homeowners (2023)

Federal Solar Tax Credit Guide for Homeowners

Federal Solar Tax Credit Guide for Homeowners

Through the solar investment tax credit (ITC), often known as the federal solar tax credit, the federal government has encouraged homes to transition to solar power since 2005.

The amount of this credit has changed over time, but at the moment homeowners may deduct 30% of the entire cost of installing a solar system on their federal taxes. By 2033 and 2034, the ITC will be down to 26% and 22%, respectively. Without a renewal by Congress, it will expire in 2035.

To help you save more on your solar power system, this article explains how to be eligible for and submit a claim for the federal solar tax credit.

The Federal Solar Tax Credit: What Is It?

You can deduct expenses from your federal income taxes by claiming the solar investment tax credit. ITCs are not tax deductions. Instead, it lowers your tax liability. The expenses related to establishing a solar photovoltaic (PV) system during that tax year are covered by this credit. The amount you can deduct from your solar project has no upper limit.

The Tax Credit: How Does It Operate?

As long as you reside in the United States, own your solar panel installation, and qualify for the federal solar tax credit. If the amount of taxes you owe is less than the credit you earn, it will carry over to the next year. You may only claim the credit once. Recall that the credit is a deduction rather than a return.

Costing instance, if you build a solar panel system for $19,000, your federal tax return balance will be $5,700 lower. The remaining credit will carry over and be used to your federal income taxes for the next year if your tax obligation is less than $5,700.

When filing your yearly federal tax return with the Internal Revenue Service, you must include the solar tax advantage (IRS). Upon request, your solar supplier should give the necessary paperwork and instructions. Here, we’ve outlined the critical actions to taking credit:

In addition to the ITC, we strongly advise you to look into any other sales and property tax exemptions that could be available in your state. For instance, you can benefit from the Self Generation Incentive Program in California (SGIP). The installation of an energy storage system is eligible for an upfront reimbursement under this scheme.

As additional solar battery installations take place in California, the value of this incentive diminishes with time, similar to the ITC. At this time, the SGIP is at Step 6, which costs $200 per kilowatt-hour (kWh) of energy storage capacity. The well-known solar battery, the Tesla Powerwall 2, would save you about $2,700 overall with this sum.

Is There a Federal Solar Tax Credit Available to Me?

If you meet the requirements listed below, the Office of Energy Efficiency & Renewable Energy (EERE) says you can apply for the federal solar tax credit: Your solar system was set up somewhere between January 1, 2006, and December 31, 2034.

Initial setup: The solar PV system is brand-new. The credit may only be used for new solar equipment installations; it cannot be used for reusing or recycling an existing system.

Your primary or secondary home in the United States is where the solar system is placed. If the power produced is credited against and does not exceed your home’s electricity use, it may also be utilized for an off-site community project.

You are the owner of the solar PV system. If you are leasing the system or have a contract to buy the electricity it produces, like a solar power purchase agreement, you cannot claim the credit (PPA).

Does the federal tax credit for solar energy have an income cap?

The ITC has no upper income restriction. To be able to take full advantage of the benefit, you must have a sizable tax obligation. If your tax liability is less than the credit, the leftover credit will carry over from year to year.

If I don’t owe any taxes, am I still eligible for the federal solar tax credit?

No. If you owe no taxes, there is nothing to offset, thus you are not eligible for an ITC since tax credits are used to offset the remaining balance of taxes owed to the government.

Can I make two claims for the federal solar tax credit?

The solar tax credit is technically not transferable. If you owe less in taxes than the credit, the credit’s unused portion will continue to carry over to the following tax year. You might be able to use the credit more than once if you own multiple solar-powered homes. To find out if you can benefit from this, we advise speaking with a tax professional.

The federal solar tax credit reduces the cost of going solar and makes the investment viable. In order to claim the Solar ITC, we advise you to get in touch with your solar supplier, the IRS, and a tax expert for tax assistance.