Updated Oct 28, 2022
The Federal Solar Tax Credit is an incentive for all U.S. solar panel owners, designed to save you money off your tax bill. In this article, we’ll share all the factors involved in the application process, eligibility and requirements, how it works, and more.
The Federal Solar Tax Credit is great if you’re thinking about going solar, as it enables you to claim back 26% of your solar panel system that’s been installed in 2020–2022. For systems installed after 2023, you’ll receive 22% tax credit, while solar installations made before December 31, 2019, were eligible for a 30% credit.
Until Congress renews the extension of the ITC, the tax credit will expire at the beginning of 2024.
If you’re a homeowner, you can claim the Solar Tax Credit for the total cost of your solar panel’s equipment and original installation to reduce the amount of money you owe when filing your federal tax return.
The credit received is calculated to apply a tax deduction for that tax year. For example, if you receive $500 in credit, you’ll owe $500 less in your tax payments.
It’s worth noting that a tax credit isn’t the same as a tax refund since you must owe taxes to the federal government to receive a dedication. In the event that you don’t owe any tax money, you wouldn’t receive any money for your tax credit. Additionally, this tax credit can be used against minimum tax or federal income tax, so you’ll be able to claim money off your tax bill for your solar energy.
At the time of writing this article, you’ll receive a 26% tax credit on your current tax bill.
There are many homeowners with a variety of properties who are eligible for the Federal Solar Tax Credit. In fact, those who own mobile homes, apartments, condominiums, and manufactured homes can apply.
Additionally, you can claim the Solar Tax Credit for rental properties, although you might reside there for at least a portion of the year. For this circumstance, you need to calculate a percentage of what you can claim depending on how much time you spend in the rental property every year.
On the other hand, those who lease their solar panel system or have a Power Purchase Agreement (PPA) aren’t eligible for the Solar Tax Credit. If you don’t own your solar equipment, you aren’t eligible to make any claims.
Here are the following criteria:
To be eligible for the Solar Tax Credit, you must:
The following factors are expenses included in this tax credit:
Aside from the Solar Tax Credit, there are other incentives and rebates to owning your own solar panels. Below, you’ll find a selection of the ones to look out for.
The State Government Solar Rebate allows each U.S. state to offer an incentive that’s unique to them and can be different from offerings in other states.
This program provides incentives for solar equipment installations that meet the necessary requirements.
SRECs are performance-based solar incentives that let you earn money based on your solar energy generation. If you’re a homeowner, you can earn one SREC for every megawatt hour of electricity that your solar panel creates.
There are unique incentives based on your location in the U.S. Below are the incentives for each U.S. state:
Depending on your location, credit score, and other factors, you can receive a discount interest rate on loans to purchase and install a solar power system. Typically, this is 3.99–16.99%.
This is a utility rate program that means your utility company purchases any excess solar energy from your solar panels used to produce electricity for future use.
These grants are available for homeowners and small businesses that pay up to 50% of the total cost of installing and purchasing a solar panel system. The USDA REAP Grant program is also receiving a boost from the Inflation Reduction Act that was signed until August 2022.
If you apply this tax incentive, you subtract half of the value of the ITC from the amount you depreciate. Currently, the ITC is at 26%, so you’ll subtract half of this figure from the total cost of your solar panel system.
Yes, it is absolutely possible to combine state solar incentives with the federal tax credit. Just ensure that you meet all the requirements for each.
In order to claim the Federal Solar Tax Credit, you need to file an IRS Form 5695 for your tax year. You’ll then need to calculate the credit amount on Part 1 of this form and enter the final figure on your 1040.
The IRS provides this tax refund as a credit, so you won’t receive money for the amount you’ve spent on your solar panel system. However, you’ll receive savings as credit on your future taxes.
The Federal Solar Tax Credit began in 2005 under the Bush Administration, and it was scheduled to last until the end of 2007. Originally, the Solar Tax Credit provided 30% credit on the total cost of any solar system, but it was capped at $2,000.
In 2020, this amount was reduced to 26%. Thanks to Congress’ popularity of the Solar Tax Credit, it’s been extended until 2023 (for an additional two years), and it’s available to U.S. homeowners in the same form.
If the Solar Tax Credit is extended further, more than 95 Gw of solar energy will be installed in the U.S. There are so many other additional factors that show how this tax credit can have a positive impact on the U.S.
For example, solar energy would generate electricity to power 19 million homes. Solar energy would also equate to 3.5% of U.S. electricity, whereas it was 0.1% in 2010. Additionally, solar energy would offset 100 million metric tons of carbon dioxide emissions.
A solar PV system is an effective way to source renewable energy, helping to save money on outgoing costs and decrease the impact of sourcing energy on the environment. With incentives, such as the Federal Solar Tax Credit, you can reap the rewards of purchasing and installing a new system if you reside in the U.S.
Yes, but there are very specific circumstances, such as being a tenant-stockholder.
No. If the tax credit exceeds your tax amount, you won’t receive a refund for this difference.
You can only claim the Solar Tax Credit once for your solar panel system.
It can be carried forward for one year up to 26 years.
It’s currently 26%.
No. If anything, the Solar Tax Credit is designed to decrease your tax amount.
At House Method, transparency and trust are our most important values for the reader. That’s why we took the time to create an objective rating system and score each solar energy company/service according to our methodology.
Our research team dug deep into the fine print of contracts, combed through more than one hundred customer reviews, and thoroughly investigated all of each solar energy company’s services, costs, and products. We’ve done the homework for you by researching nearly all of the solar energy companies on the market so you can have the information you need to make the best choice for your home.
We developed a formula to objectively determine the best solar energy companies and give each a score out of 100 based on the following criteria:
Plan Options (30): Do they provide a variety of plan options? We looked at the number of plans each solar energy company offered and the flexibility of adjusting the plan.
Services offered (20): How many services are offered in each plan? We looked at whether the company manufactures its own solar panels, whether it contracts out installation, and what additional products each company offers.
Trust (10): What do customers say after their solar panels are installed? Does this company offer a guarantee? We considered how satisfied customers are post-service if the company does what it says it will, BBB accreditation, and service guarantees.
Prices (10): How reasonable are the costs of the plan or service in comparison to the industry average? We compared the costs of each company to competitors that offer the same solar energy services.
Unique perks (10): Does the company offer discounts or special services such as financial incentives, rebates, or a useful mobile app? We looked for extras each company offers that set them apart from the competition.
Customer Service (10): How is the customer experience when contacting the company? We considered the speed of response, weekend/holiday availability, and ease of communication through phone calls, email, and online chat functions.
Nationwide availability (10): How many states does the company offer its services? Companies that operate nationally and in all zip codes are favored over those with limited availability.
Other Solar Resources