Going solar gives you the power to take control of your home's energy consumption by using renewable energy in a way that fits into your life. By installing solar panels, homeowners like you help protect the environment and contribute to the country's energy independence. The federal tax credit for going solar has been extended for another year, making this investment even more attractive.
A tax credit reduces the taxes you owe on your income tax return. The U.S. Internal Revenue Service (IRS) describes "tax credits" as reductions in the amount of taxes you owe. Tax credits often can be more valuable to you compared with tax deductions, which reduce the amount of income on which you are taxed. A solar installation can mean big savings on your electricity bill.
As of June 2021, the applicable credit percentages are:
- In the case of property placed in service after December 31, 2019, and before January 1, 2023, 26%.
- In the case of property placed in service after December 31, 2022, and before January 1, 2024, 22%.
Tax Credit Eligibility
According to the U.S. Department of Energy, in order to qualify for the solar federal tax credit, the following requirements must be met:
- You must own your home (renters are excluded, unfortunately).
- The solar panel system must be new or is being used for the first time.
- You purchased your solar panels
For customers who lease and choose not to purchase, leasing offers a lower cost option for homeowners that don't claim the solar investment tax credit. On the other hand, a federal tax credit is available at the end of the year for homeowners who can utilized the credits after their deductions. Please consult your tax consultant for eligibility.
How Do I Claim the Tax Credit?
If you file IRS Form 5695 as part of your federal income tax return, you may be eligible for a tax credit. You will find your credit on the form, then report that amount on your individual income tax Form 1040.
If you have a larger credit than you have income tax due on your last year’s federal income tax return, the IRS cannot refund that additional amount to you. However, it can generally be carried forward to the next tax year. It's necessary to keep in mind that this is a tax credit, not a rebate or deduction. Tax credits can help offset the balance of tax due to the government. If you have no tax liability, there is nothing to offset and you can’t take advantage of it. There are a lot of reasons why you might have missed claiming your federal tax credit in the previous year. For example, if you forgot to include the credit on your return, or had a change in your eligibility that should have triggered a review by the IRS. In any case, there is no need to worry - you still can amend your returns.
With the 26% federal solar tax credit set to expire at the end of 2023, it's never been a better time for residential customers to install solar!