Did you know that you can claim 30% of the total cost of your solar system on your annual income tax return, reducing the taxes you owe?
You aren’t the only one who wants to go solar. The U.S. government is also hoping more homeowners switch to this renewable energy.
And to encourage you and many others to do so, they are cutting the cost of your solar unit using the solar tax credit incentive.
Find out how the federal solar tax credit, also known as the solar investment tax credit (ITC) helps get you some cash back on your solar power system below.
Timeline of the Solar Energy Tax Credit
Since the Energy Policy Act of 2005, the federal government has been giving homeowners a nudge toward solar energy with this credit.
While the rate of the credit has changed over the years, it’s currently at its highest, covering 30% of the cost of your PV solar installation cost. This percentage will remain until 2032. After this period, the credit percentage lowers to 26% in 2033 and again to 22% in 2034.
This means that now is the perfect time to take advantage of solar installation to get the lowest price.
Solar Tax Credit: How Does it Work?
The solar tax credit, also known as the Investment Tax Credit (ITC), is a federal incentive that allows you to claim a percentage of the cost of your solar system as a credit on your federal income taxes.
It isn’t a deduction or refund because it only lowers the amount of taxes you may owe. If there is money left over, then that amount will roll over to the next year’s tax filing.
For example, if your solar unit costs $20,000, then you will get a 30% credit of $6,000. But, if you only have a tax liability of $2,500 then the remaining $3,500 will go toward your tax credit next year.
The ITC can be claimed for both residential and commercial solar installations and it can only be claimed once.
Who Qualifies for the Federal Solar Tax Credit?
Not everyone who has solar panels can claim them on their taxes. To qualify for this solar tax incentive, you must meet the following criteria:
- You must own the solar system, either through direct purchase or financing. (No, leased solar systems don’t qualify because they are not owned but rather rented.)
- The solar system must be installed between January 1, 2017, and December 31, 2034, to claim the 30%.
- Your solar unit needs to begin operations in the year of filing and be the originally installed solar system from that tax year. (January 1st to December 31st)
- The solar system must be located in the United States.
- You must have a federal tax liability in the year you claim the credit.
All types of residences may be able to claim the tax credit, including single-family homes, town/row houses, condominiums, and boat houses.
What Does Solar Tax Credit Include?
Basically, anything that relates to your solar unit is included in your final cost and will be the amount used when filing your taxes.
This includes:
- Installation Labor
- Solar Panels
- Mounting, Wiring, and Inverter Attachment Equipment
- Permits, Inspection, and Developer Fees
- Battery Backup Storage Devices
Sales tax may also be included in the price of your solar unit. However, Maryland is one of the states that exempts solar panel installation from sales tax, making your upfront cost even more affordable.
How Do I Claim the Federal Solar Tax Credit?
To claim your solar tax incentive, you’ll include it as part of your annual federal tax return with the IRS.
As your solar provider, Rising Sun Solar Solutions will give you the paperwork with your final solar system cost and answer any questions you may have about the process. We provide this info upfront, so you know how much credit you’re looking at and how much money you will save.
Here are the general steps to follow when filing your taxes using the solar tax credit:
- Download IRS Form 5695 to file with your tax return.
- Calculate the credit on Part I of the form based on your system and installation costs.
- Multiply the total solar credit as well as any other Residential Clean Energy credits by 30% (.30) to get your total credit amount.
- Check the appropriate box regarding whether you have a qualifying battery storage unit.
- If you are carrying over the credit from the previous year add it to the appropriate line.
- Consider any tax liability limitations and carry the remaining about to the line for the next tax year.
- Complete any other parts of the form as per your specific circumstances.
If it’s your first time claiming, it might be wise to consult a tax consultant and ask a professional at Rising Sun Solar Solutions should you have any questions about this part of the form.
How Much Does Solar Cost With the Federal Solar Tax Credit?
On average, homeowners pay between $14,321 to $21,960 for their solar panel systems, according to Consumer Reports. This average doesn’t include the 30% tax credit. Plus, local and statewide incentives can further lower the cost.
The total cost will vary depending on your system size and how much energy your home requires. Remember, a larger system may cost more upfront, but your tax credit will also be higher.
There’s No Better Time to Go Solar
The solar tax credit isn’t the only incentive to make you want to go solar sooner rather than later.
As local governments strive to meet environmental goals, they also offer state-wide incentives. In addition, prices for solar panel technology are at an all-time low as technology and manufacturer practices become efficient and mainstream.
Don’t miss the solar revolution.
Start by contacting Rising Sun Solar Solutions to get a free quote today.