Federal Solar Tax Credit: Maximizing Benefits for Homeowners

The federal government often uses taxes as a way to incentivise people into making decisions. Of these incentives, the federal solar tax credit is one which homeowners can take credit for 30% of eligible expenses on their federal tax return. Incentives like this are aimed at making a greener future for the country and rewarding those who opt in. But not everything is deductible and homeowners should understand this federal tax credit prior to making any major solar purchases for their home.

Highlights/ Key Takeaways

• The federal government will reward eligible homeowners and purchases a tax credit related to their solar power purchases through 2035
• Not all equipment is qualifying so homeowners should understand requirements before making purchases
• This tax credit is filed on your federal tax return and is currently a 30% tax credit of total purchase

What Is the Federal Solar Tax Credit?

The federal solar tax  is described by the department of energy as a, “tax credit that reduces the federal income tax liability for a percentage of the cost of a solar system that is installed”. This means that purchasers of a solar system may expect a reduced tax bill at the end of the year. 

How Does the Federal Solar Tax Credit Work?

The federal solar tax credit allows homeowners to reduce their tax bills by crediting qualifying purchases. These credits are from the federal government and are aimed at creating incentives for purchases of renewable energy sources for residential buildings

What’s the Value of the Federal Solar Tax Credit?

Through 2030 the current amount which can be credited is 30% of the purchase price of the solar system. This amount will decrease to 26% through 2033 and 22% in 2034.

When Can You Claim the Federal Solar Tax Credit?

Your solar energy system will need to be purchased prior to December 31, 2034 in order to qualify for the solar tax credit. Any purchases at this date currently would not qualify, however be sure to check closer to this end date to understand if any extensions have been granted. 

Example of How the Federal Solar Tax Credit Works

A homeowner may purchase a qualifying solar system for their house. This may include the physical equipment, qualifying installation, and an energy storage device. The total cost of this system was $20,000.00. The homeowner can take a tax credit of 30% or $6,000.00.

What Does the Federal Solar Tax Credit Cover?

There are various pieces of equipment which are covered by this solar tax credit, according to the department of energy you can take credit for qualifying expenses such as: 

• Solar PV Panels
• CSP Equipment
• Installation Costs and some prorated indirect costs
• Transformers
• Circuit breakers
• Surge Arrestors
• Energy Storage Devices

When designing your system or making choices about what may or may not qualify get in touch with a solar contractor and be sure to visit the support DOE website.

How Do I Qualify for the Federal Solar Tax Credit?

If you are considering a solar system, or how much you could save on one for your house, you may want to confirm you qualify for the federal solar tax credit; there are a few attributes owners should focus on to determine this. 

Is There an Income Limit for the Federal Solar Tax Credit?

There are currently no income limits on who can claim the federal solar tax credit at this time, nor an amount to how much which can be claimed by a homeowner. 

Can I Claim the Federal Solar Tax Credit if I Finance My Solar Panels?

Whether you financed you solar panels and system for your home, or paid out of pocket, what matters to the federal government is whether the homeowner is the person ultimately paying for the system. This means that if you are utilizing a loan to purchase for your system you can still qualify for the federal tax credit. 

Can You Get the Federal Tax Credit if You Lease Your Solar Panel System?

Currently a leased solar panel system for your home is not eligible for the federal solar tax credit. The homeowner must purchase the system in order to qualify for the federal tax credit. 

Do Off-Grid Solar Systems Qualify for the Federal Solar Tax Credit?

If your solar power system is off grid, meaning your home is not connected to the power grid, you can still claim the federal solar tax credit; the only requirement is that your system is generating power for the resident. 

Can I Claim the Federal Solar Tax Credit on My Rental Property?

If your solar power system is installed on a rental property you would not be eligible for the federal solar tax credit. However if you were to install this system on a vacation property which you own then it would qualify for the tax credit. 

Does the Federal Solar Tax Credit Apply to New Home Purchases?

The federal solar tax credit applies to the purchase of solar power systems intendended to generate power for residence. If the system is already existing on the home you are purchasing this would not qualify for a tax credit. 

How to Claim the Federal Solar Tax Credit

Claiming your federal solar tax credit will be completed on your tax returns submitted to the IRS. If you are unsure how to claim the federal solar tax credit or unsure about some of the details consult with a tax professional to guide you.

• Determine the amount of credit - determine all qualifying expenses related to your purchased solar power energy system and tally up the total; these expenses include the system, installation, and qualifying auxiliary equipment. Once totaled, multiply this amount by 0.30, this will equal the credit you should file for. 
• File for the credit - you will need to fill out IRS form 5695 for your solar tax credit. This form will ask you to outline the qualifying expenses and show how you came to the number for credit sought. Once you have this form filled out, move to your form 1040 and enter the amount on line 5. 
• File your return - depending on the amount of taxes you owe, or refund you should get you may have credit leftover to claim next year, or have used it all. Maintain your records and track your credits to get the most out of your tax return. 

Additional Information on the Federal Solar Tax Credit

Is There a Dollar or Lifetime Limit on the Federal Solar Tax Credit?

There is currently no limit on the amount of federal solar tax credit which a homeowner can access or take credit for with their purchase

How Many Times Can You Claim the Federal Solar Tax Credit?

This credit can only be claimed once by a homeowner. Any ongoing maintenance or additions would not be considered eligible for the federal solar tax credit. 

Are Rooftop Solar Panels the Only Option if You Want the Federal Tax Credit?

You do not necessarily need to install solar panels on your roof to be eligible. As long as the solar panels are generating electricity for the homeowner the solar panels would qualify. 

Can I Claim the Federal Solar Tax Credit on My Vacation Home?

Yes, installing solar panels on your vacation home would qualify for the federal solar tax credit as it is a property the owner is free to enjoy, however this would not apply to rental properties the homeowner may own. 

If the Federal Solar Tax Credit Exceeds My Tax Liability, Will I Get a Refund?

In this scenario it may be best to consult with a tax professional. You may receive a credit for next year, which the balance of the tax credit can be taken, or again carried forward. 

Final Word

The federal solar tax credit is a great tool to incentivise homeowners to invest in greener systems and make access more available for more people. By taking advantage of this tax credit, understanding what is eligible, and how to file for the credit, homeowners may see a 30% dollar for dollar discount on their purchase. Coupled with long term decreased energy costs this purchase may create a positive ROI for some, or even lower bills enough to see a difference, making this purchase an excellent choice while the credit is available.