What Is the Federal Solar Tax Credit?
The Residential Clean Energy Credit, also known as the Federal Investment Tax Credit (ITC), allows homeowners to claim a tax credit for installing a new solar energy system. This credit has been extended through 2034, helping homeowners reduce their federal income tax liability.
How Does the Federal Tax Credit Work?
When you purchase a solar energy system, whether with cash or through an energy-integrated mortgage, you can apply the Residential Clean Energy Credit to lower your tax bill. This credit directly offsets your income tax liability on a dollar-for-dollar basis.
The tax credit is non-refundable, meaning you cannot receive a refund for excess credit.
If the credit amount exceeds your tax liability for the year, you can carry over the remaining balance to future tax years while the credit remains available.
There are no income restrictions for claiming this credit.
Who Qualifies for the Solar Tax Credit?
To be eligible for the Residential Clean Energy Credit, you must meet the following requirements:
The solar system must be installed between January 1, 2017, and December 31, 2034.
The system must be installed on a residential property you own in the United States.
The solar system must be new or used for the first time.
You must purchase the system outright or finance it with a loan (not a lease or power purchase agreement).
How Much Is the Solar Tax Credit?
As of now, homeowners installing a solar energy system can claim a 30% tax credit on the total qualifying cost of the system.
The credit applies to both equipment and installation costs.
After 2034, this tax credit is scheduled to expire.
Unlike a deduction, a tax credit directly reduces the total amount of taxes you owe.
How to Claim the Solar Tax Credit
To claim the credit, follow these steps:
Complete IRS Form 5695: Report your solar installation costs in Part I of the form.
Transfer the credit amount to IRS Form 1040: Apply the credit to your tax return.
Carry over any unused credit: If your credit exceeds your total tax due, the remaining balance can be applied to future tax years.
Example Tax Scenario:
Your total solar tax credit is $3,000
Your federal tax liability is $2,500
The remaining $500 credit can be rolled over to the following year.
Consult a Tax Professional
Arcasa does not provide tax, legal, or financial advice. This guide is for informational purposes only and should not be considered tax or legal guidance. Consult a qualified tax professional for advice specific to your situation.