How the Federal Solar Tax Credit Works


By now, hopefully you have already discovered that going solar is a smart investment. Especially with incentives backed by the federal government. Along with utilities and state governments offering their own solar incentives, the federal solar tax credit can be a major factor in reducing your overall solar panel installation costs. The federal government offers a Solar Investment Tax Credit (ITC) as an incentive for individuals and businesses to install solar power systems. The ITC, can seem quite complicated, but the basics are easy to understand. And Phoenix Power is here to help! Keep reading.

What Is a Tax Credit?

A tax credit is a dollar-for-dollar reduction in tax liability for an amount that was spent or that the taxpayer paid. Tax credits are subtracted directly from the total of tax owed and reduce a taxpayer’s liability. Tax credits are different from deductions, which can only decrease your primary tax (or income) by 2.5%.

What Is the Federal Solar Tax Credit?

The federal solar tax credit, also known as the Investment Tax Credit (ITC), is a tax credit that allows you to deduct a portion of the cost of installing a solar energy system from your federal taxes. The solar tax credit was established in 2006 to encourage the use of renewable energy and has been extended multiple times.

The ITC is available for both residential and commercial solar installations, and there is no maximum limit on the size of the system or credit.

The federal solar tax credit makes solar power an even more attractive investment by allowing you to deduct a portion of the cost of installing a solar energy system from your taxes. This makes it possible to maximize the return on your investment and enjoy the financial benefits of going solar for years to come.

How Does It Work?

The solar tax credit works by allowing you to deduct a certain percentage of the cost of your solar energy system from your federal taxes. The current solar tax credit is 30% of the cost of your system, and it applies to both residential and commercial systems.

A 26% tax credit is available for solar PV systems installed in 2020 and 2021. In August of 2022, under the new extension, ITC was raised to 30% for installations taking place between the years of 2022 and 2032. It will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. Unless Congress renews it, the tax credit will expire in 2035.

For example, now if you pay $20,000 for a solar panel installation, you can claim a tax credit of $6,000. That means a brand new and high quality solar power installation done by Phoenix Power would cost you 30% less. This is a great return on your solar investment.

Besides all economical benefits of going solar, such as greatly reducing your energy bills, maintaining your energy costs consistent and becoming independent from energy companies, you also have this great opportunity right now to take advantage of the Federal Solar Tax Credit.

Contact us at Phoenix Power so that we can help you go solar.

What’s Included?

  • Solar PV panels or PV cells used to power an attic fan (but not the fan itself)
  • Labor costs for contractor design, installation, preparation, testing, inspection, and permit fees
  • Equipment necessary for keeping your solar panels safe and compliant such as wiring, inverters, and converters
  • Devices that are charged exclusively by solar panels and used to store energy
  • Sales taxes on eligible expenses

Who Is Eligible for the Solar Tax Credit?

Every state and even every county has unique claim requirements. If you are interested in knowing specifics, please contact our team. With your zip code we can tell you exactly what programs are available in your area that may help you pay for solar panels. Plus, because we work with installation partners across the US, we are able to offer special discounts on your solar panels.

The solar tax credit is available for both residential and commercial solar energy systems. However, there are some restrictions on who is eligible for the solar tax credit.

To be eligible for the solar tax credit, you must be the owner of the solar energy system. This means that if you lease your solar energy system or enter into a power purchase agreement (PPA), you are not eligible for the solar tax credit.

In addition, the solar energy system must be installed on your primary residence or second home. Solar energy systems installed on investment properties or vacation homes do not qualify for the solar tax credit.

How to Claim the Solar Tax Credit

Claiming the solar tax credit is a fairly simple process. When you file your taxes for the year in which you installed your solar energy system, you will fill out Form 5695 and submit it with your return.

Form 5695 will list the eligible costs of your solar energy system and calculate the amount of credit you are entitled to. Once you have completed Form 5695, you will submit it along with your tax return.

If you have installed a solar energy system, be sure to keep all of your receipts and documentation so that you can correctly calculate the value of the credit.

It’s important to note that you can only claim the solar tax credit in the year in which you installed your solar energy system. For example, if you don’t install your system until 2023, you won’t be able to claim the credit on your 2024 taxes.

The solar tax credit is a great way to save money on your solar energy system. If you have any questions about the solar tax credit or how to claim it, Phoenix Power is here to help.

Conclusion

The solar tax credit is a great way to save money on your solar energy system. If you are thinking about going solar, be sure to take advantage of the solar tax credit. Contact Phoenix Power today to learn more about going solar and maximizing your return on investment. 

Different states and local authorities offer unique incentives for homeowners wishing to install solar panels and take advantage of opportunities like tax credits and solar panel discounts. Starting with a free consultation, our team can map out every program and incentive you are eligible for so paying for your solar panels doesn’t seem impossible. We will match you with one of our expert solar advisors who will answer all of your questions and find ways to save you money on solar panels.

Frequently Asked Questions

How much can I save with the solar tax credit?

The solar tax credit allows you to deduct 30 percent of the cost of your solar energy system from your federal taxes. This can save you a significant amount of money on the cost of your system.

How much time do I have to claim the federal tax credit?

You have until December 31, 2023 to claim the solar tax credit. After that, the credit will expire.

What happens if I don’t use all of the credit in one year?

If you don’t use all of the credit in one year, you can carry the unused portion forward to future years.

Do I have to pay the solar tax credit back?

No, the solar tax credit is a tax deduction, not a loan, so you do not have to pay it back.

Do I have to install the system myself to qualify for the credit?

No, you do not have to install the system yourself to qualify for the credit. However, you must be the owner of the property on which the system is installed. Phoenix Power is here to help you with that!

How do I claim the solar tax credit?

The solar tax credit can be claimed as an itemized deduction on your federal income taxes, or as a business expense if you are a small business owner. If you have any questions about the solar tax credit or how to claim it, Phoenix Power is here to help.

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