The residential clean energy credit can help you to recoup as much as 30% of the cost of solar panels.
Nerdy takeaways
- The U.S. federal government provides a solar tax incentive that allows you to recover as much as 30% of the expenses associated with setting up a solar energy system.
- The residential green energy incentive also applies to various renewable energy initiatives by homeowners, as long as they meet specific criteria.
- To take advantage of the solar tax incentive, you need to complete IRS Form 5695.
- You are eligible to receive the tax incentive if you also benefit from other green energy subsidies for the same project, though this could lead to a reduced credit amount.
Should you have put in solar panels, you might qualify for a tax deduction when you submit your tax return. The U.S. federal government provides a solar tax incentive that may cover as much as 30% of the expenses associated with setting up a system that harnesses solar energy to supply power for your residence.
What is the federal solar tax credit?
While this tax incentive is typically known as the solar tax credit, its formal designation is the residential clean energy tax credit. This credit can be used to offset costs related to solar panel purchases and their installation, however, it does not cover construction expenses designed specifically to hold the panels. At times, the credit may be combined with local subsidies and government-sponsored initiatives aimed at promoting clean energy.
The value of the solar tax credit can fluctuate based on the expenditure incurred during the project and the year it was finished. Nonetheless, these benefits ought to be accessible in one way or another to homeowners who install a qualifying system at any point between 2017 and 2034.
Solar tax credit 2024
The renewable energy tax incentive lets taxpayers deduct a tax credit up to 30% of the qualified expenses. You don’t need to have a certain income to be considered, and you can apply for this credit annually while meeting the criteria. This credit will stay at 30% until 2032.
How does the solar tax credit work?
The solar tax incentive lets you deduct a portion of the expenses related to a solar energy system to lower the amount of taxes you need to pay. The U.S. Department of Energy reports that the tax deductions for a typical solar setup can amount to $7,500. The real amount you can deduct from your cost, however, changes depending on the year the system was put into operation:
| System in service | Credit amount |
|---|---|
| 2017-2019 | 30% |
| 2020-2021 | 26% |
| 2022-2032 | 30% |
| 2033 | 26% |
| 2034 | 22% |
Is the solar tax credit refundable?
No. The solar tax rebate can lower your tax expenses, but the maximum amount you can receive is limited to your total tax liability. This is due to the fact that the rebate is considered a “nonrefundable” benefit in the tax world. In simpler terms, if the rebate reduces your total tax liability below zero, the IRS won’t issue you a check for the remaining balance. However, you are allowed to “carry forward” any unused part of your rebate and apply it towards your taxes in the next year.
The solar tax rebate is an effective tax strategy for those who qualify, as it offers a credit rather than a deduction. This means you can reduce your tax liability directly. The benefits can be significantly greater compared to a deduction, which requires you to itemize and only returns a fraction of your expenses by lowering your taxable income.
How do you qualify for the federal solar tax credit?
Not every project in these areas is eligible for assistance from the government, but there are some basic rules that can give you an idea of what to anticipate.
- The project has to be in your U.S. home: According to the IRS, this means it was your residence during the tax year you are claiming the credit and could encompass various structures like a house, houseboat, mobile home, cooperative apartment, condominium, or a manufactured home. For renewable energy projects such as solar, wind, and geothermal, the property doesn’t necessarily have to be the one you live in.
- You have to own the system: The expenses associated with a system that is leased on your property are not eligible for the credit.
- You must have placed the project in service in 2017 or later: Projects that are operational before the energy credit initiative starts won’t be beneficial for your tax filing.
- Not everything is include:. The process of installing a solar energy system can be complex, and not all expenditures are covered by the program. For example, it pays for the installation but not for the structural support work that only helps the system, not the overall building.
What other projects are eligible for the residential clean energy credit?
The home-based green energy rebate also includes various forms of renewable energy activities performed by homeowners. The expenses related to the work, putting together, or setting up, and the connecting of the following properties are typically eligible for reimbursement.
- Solar electric.
- Solar water heaters.
- Small wind energy.
- Biomass fuel.
- Fuel cells.
- Geothermal heat pumps.
How do you claim the solar tax credit?
To receive the residential clean energy credit (also known as the solar credit) while preparing your tax return, you must complete IRS Form 5695. You’ll require specific details regarding your tax status, which you can find in other relevant documents such as Form 1040. Additionally, you must provide information regarding the expenses associated with your energy project, along with a certificate from the manufacturer of the equipment proving that the equipment meets the criteria for the credit.
Does the solar tax credit work with other incentives?
You can qualify for the tax rebate if you also take advantage of other green energy perks for your project, but this extra financial support might lower the total expense of your system for tax-related reasons. Since the federal tax rebate is determined as a percentage of that expense, it’s possible to receive a smaller rebate.
Different states offer various solar panel incentives, so it’s important to research your state’s regulations before deciding anything. If you’re uncertain about where to begin, NC State University’s NC Clean Energy Technology Center provides a comprehensive directory of available programs across the country.
In general, securing a state tax deduction or rebate won’t prevent you from obtaining solar tax rebates from the IRS.
However, incentives provided by your local energy provider may not be as beneficial (though they could still result in savings).
As per the IRS, the total expense used to calculate your tax credit must include any aid received from a public utility, unless that aid was considered as income for federal tax purposes.
