How to Claim Solar Tax Credits

Solar energy has emerged as a key player in the transition towards a more sustainable and environmentally friendly future. As individuals and businesses increasingly seek to harness the power of the sun to meet their energy needs, government incentives such as the Solar Tax Credit have helped make solar installations more accessible and affordable.

Today we will explore the ins and outs of claiming Solar Tax Credits, covering everything from the potential cost savings of solar panels to the intricacies of eligibility criteria and frequently asked questions.

By understanding and utilizing Solar Tax Credits, you can significantly offset the initial cost of solar panel installation, making sustainable energy solutions more feasible and financially attractive. This guide aims to provide you with the necessary information to navigate the process of claiming the tax credit effectively.

Can Solar Panels Save You Money?

Investing in solar panels is not only beneficial for the environment but can also significantly reduce your energy costs over time. By generating your own electricity, you can decrease your dependence on the power grid, leading to lower monthly energy bills. The initial cost of solar panel installation might seem steep, but the long-term savings can be substantial. Additionally, solar panels typically increase the value of your home and may reduce your home’s carbon footprint.

What are Solar Tax Credits?

Solar Tax Credits, formally known as the Investment Tax Credit (ITC), are incentives provided by the government to encourage homeowners and businesses to install solar energy systems. The ITC allows you to deduct a certain percentage of the cost of installing a solar energy system from your federal taxes. This initiative not only promotes the adoption of renewable energy but also makes the installation of solar systems more affordable for a broad range of homeowners and businesses.

How Does the Solar Tax Credit Work?

The Solar Tax Credit is relatively straightforward. Here is a step-by-step guide on how it operates:

1. Eligibility: The ITC is available to both residential and commercial entities that install solar PV systems. Both purchased and financed systems are eligible for the tax credit.
2. Credit Amount: The percentage of the cost that can be claimed as a tax credit has changed over the years. As of recent legislation, homeowners and businesses can claim 30% of the installation cost with no upper limit. This rate is scheduled to remain until 2032, after which it will decrease incrementally until the credit expires.
3. Claiming the Credit:
   • Installation Year: The tax credit can be claimed on the federal income tax return for the year the solar system was installed and became operational.
   • Form 5695: To claim the credit, you must file IRS Form 5695 as part of your tax return. You will calculate the credit on this form by applying the 30% rate to the total cost of your solar system installation.
   • Carryover: If the tax credit exceeds the amount of taxes you owe in that year, you can carry over the unused portion to the next year, as specified by the IRS guidelines.
4. Documentation: It’s important to keep all receipts and documents related to the purchase and installation of your solar system. These will be required when applying for the Solar Tax Credit to ensure that all claims are accurate and meet IRS requirements.
5. Consult a Tax Professional: It’s a good idea to consult with a tax professional who can provide guidance tailored to your specific situation, ensuring that you maximize your benefits while complying with all applicable tax laws.

What is Covered by the Solar Tax Credit?

The Solar Tax Credit covers a range of expenses associated with the installation of a solar photovoltaic (PV) system. These include:

• Solar PV panels: The primary component of a solar energy system.
• Labor costs: Includes installation and contractor fees, and can also cover fees for on-site preparation, assembly, and original system installation.
• Associated equipment: This includes inverters, wiring, and mounting equipment which are necessary for the functioning of the solar system.
• Energy storage devices: Batteries that store solar energy are also eligible if they are charged exclusively by the solar panels.
• Sales taxes on eligible expenses: Depending on your state, sales tax paid on these expenses can also be included in the tax credit.

Keep in mind the solar components must be new or being used for the first time. The credit is only valid for the original installation of the solar equipment.

Criteria For Claiming Tax Credits

To be eligible for the Solar Tax Credit, there are several criteria that must be met:

1. Ownership: You must own the solar PV system, meaning that leased systems or those acquired through a power purchase agreement (PPA) do not qualify.
2. Location: The solar system must be installed at a primary or secondary residence in the United States.
3. Timing: The solar PV system must be installed during the tax year for which you are claiming the credit.
4. Operational Status: The credit can only be claimed after the system is installed and operational, not at the time of purchase.
5. Tax Liability: To benefit from the credit, you must owe federal taxes in the year you claim the credit, though excess credit may be carried over to future tax years.

Solar Tax Credit FAQs

Q: Can the Solar Tax Credit be combined with other incentives?
A: Yes, the Solar Tax Credit can be combined with local and state incentives, as well as with rebates and other federal programs. However, the value of these additional incentives may need to be subtracted from the system’s cost before applying the federal tax credit.

Q: What happens if I don’t owe enough taxes to claim the entire credit in one year?
A: If your federal tax liability is less than the amount of your Solar Tax Credit in the year you install your system, you can carry over the unused portion of the credit to the next tax year.

Q: Does the Solar Tax Credit apply to off-grid systems?
A: Yes, the tax credit applies to both grid-tied and off-grid solar systems, as long as the system is used to generate electricity for a home located in the United States.

Q: Is there a deadline for claiming the Solar Tax Credit?
A: The current tax credit of 30% is available for systems installed by December 31, 2032. After this date, the credit amount will decrease incrementally until it expires at the end of 2034 unless extended by Congress.

Q: Can the Solar Tax Credit be claimed for a rental property?
A: No, the Solar Tax Credit is only available for residential properties that are used by the taxpayer as a residence. It does not apply to properties that are used solely as rental properties.

Better Tomorrow Solar Is Here to Help

At Better Tomorrow Solar, we are committed to improving lives by making solar power accessible and affordable for everyone. We offer solar panel installation and battery storage for both residential and commercial customers. Solar energy helps lower energy bills, increases energy efficiency, and reduces carbon emissions. Driven by our vision, our goal is to expand solar panel installations across Atlanta, GA, with excellent service and innovative financing options. Get in touch with us today for a free estimate.