What is the Federal Solar Tax Credit?

The federal residential solar energy credit is a tax credit that can be claimed on federal income taxes for a percentage of the cost of a solar PV system paid for by the taxpayer. (Other types of renewable energy are also eligible for similar credits). The tax credit can be used against either the federal income tax or the alternative minimum tax.

The installation of the system must be complete during the tax year.

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. 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.

Am I eligible to 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 PV system is located at your primary or secondary U.S residence
  • Either:
    • You own the solar PV system
    • Or, you purchased an interest in an off-site community solar project, if the electricity generated is credited against, and does not exceed, your home’s electricity consumption.
  • 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.

What does the federal solar tax credit cover?

  • Solar panels cost
  • Solar equipment costs like inverters, wiring and mounting hardware
  • Labor costs for solar panel installation, including fees related to permitting and inspections
  • Solar power storage equipment costs like solar batteries. Storage devices must have a capacity rating of at least 3 kilowatt-hours (kWh).
  • Sales taxes paid for eligible solar installation expenses (though some states waive sales tax on PV system equipment)

Be sure to not double dip and adjust your claims for any rebate from electric utility co. or state government and state tax credit.

This tax credit can be claimed even if:

  • You are not a homeowner.
  • The solar panels are not on the roof.
  • The solar system was financed.

Be sure to consult with your tax professional to analyze your specific tax situation. At Taxperts, we can assess your small business structure and suggest ways to increase your savings. Check out our website, Facebook page, or LinkedIn page to learn more.

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