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The Inflation Reduciton Act (passed in 2022) provides for a 30% Solar Tax Credit, a generous incentive that allows you to claim a tax credit when you install solar photovoltaic (PV) panels. Think of the solar tax credit as a “gift card” from Uncle Sam. It represents real money that makes going solar even more affordable than it already is.
Note that a tax credit is a dollar-for-dollar reduction in the amount of income tax you would otherwise owe. This is much better than a deduction and it can be applied to Alternative Minimum Tax (AMT) liability (it is not affected by income):
- A $20,000 solar installation translates to a $6,000 credit. And your PV system ends up costing only $14,000.
- If you owe the IRS $10,000 for that tax year, your credit allows you to reduce that by $6,000.
- If you owe the IRS less than $6,000 for that tax year, your credit will roll over as long as the tax credit exists.
There are other programs to be reimbursed for electrical upgrades, which are income related.
Are You Eligible for the Federal Solar Tax Credit?
Anyone who buys and installs a PV system and pays federal taxes is eligible for this solar incentive.
The property in question doesn’t even have to be your primary residence. Vacation homes, stationary RVs, and rental properties all qualify if you install solar PV panels on them.
Moreover, there are no maximum limits on the amount of credit you can receive:
- A $20,000 solar installation produces a $5,200 credit.
- A $50,000 solar PV system yields a $13,000 credit.
- A $100,000 solar system translates to a $26,000 credit.
And if the credit exceeds your tax liability for that year, it can be carried forward to the following tax season.
In order to qualify for this solar incentive, you must be the PV system owner. In other words, you have to finance your installation using cash or a low-interest solar loan.
If you finance your PV system using solar leases or a power purchase agreement (PPA), the tax credit goes to the third-party lessor of the installation – not you.
The same is true with most types of solar incentives, which is why many homeowners prefer to buy their PV systems instead of renting them.
How to Claim Your Solar Investment Tax Credit
Claiming the solar tax credit is very simple.
Once your PV installation is complete:
- Keep your solar project receipts.
- Download a free version of IRS Form 5695.
- Enter the total cost of your PV system.
- Use that amount to calculate the 30% credit.
- Apply that 30% credit to your tax liability, on your typical IRS Form 1040.
For a more detailed list of instructions, check out this IRS Guide.
Still Have Questions about the Federal Solar Tax Credit?
Would you like to learn more about this incentive? Or perhaps you have questions about going solar in general?
No problem. We’re here to help.
Whenever you’re ready, schedule a free consultation with the Sky Power Solar team.
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