Solar Energy Tax Credits

There are tax incentives available for installing solar energy on your home or business. The federal government offers tax credits to cover up to 30% of the installation cost of your new solar panel system.

The residential solar energy credit is a tax credit that can be claimed on federal income taxes for a percentage of the cost of a solar PV system. The credit applies to both new and existing homes, and there is no cap on the amount of the credit you can claim.

To qualify for the credit, the solar panels must be installed on your primary residence, and you must own the system (rather than leasing it). Additionally, the system must meet certain performance and safety standards set by the government. If you meet these requirements, you can claim the credit on your federal income tax return for the year in which the system is installed.

Understanding Solar Energy Tax Credits

If you are a homeowner who has invested in a solar photovoltaic (PV) system, you may be eligible for a federal tax credit. The federal residential solar energy credit allows you to claim a percentage of the cost of the solar PV system on your federal income taxes. This tax credit is also known as the investment tax credit (ITC) or the residential clean energy tax credit.

The federal residential solar energy credit is worth 30% of the cost of the installed system, and it is available through 2032. After that, the tax credit will decrease to 26% in 2033 and 22% in 2034, before expiring completely.

It is important to keep accurate records of your solar PV system installation and costs, as you will need this information when you file your federal income taxes. You should also consult with a tax professional to ensure that you are eligible for the credit and that you are claiming it correctly.

In addition to the federal residential solar energy credit, some states and local governments offer their own solar energy tax credits and incentives. These credits and incentives vary by location, so it is important to research what is available in your area. You can check with your state energy office or local utility company to learn more.

Eligibility for Solar Energy Tax Credits

To be eligible for the solar energy tax credit, the following requirements must be met:

  • The solar PV system must be installed in your primary residence or second home that you own.
  • The solar PV system must be new or placed in service after December 31, 2005.
  • The solar PV system must meet applicable fire and electrical code requirements.
  • The solar PV system must be operational and used for generating electricity.
  • The solar PV system must be purchased, not leased.

It is important to note that the solar energy tax credit is non-refundable, meaning that it can only be used to offset your federal income tax liability. However, any unused portion of the tax credit can be carried forward to future tax years.

If you are a landlord who has installed a solar PV system on a rental property, you may also be eligible for the solar energy tax credit. However, the credit amount may be reduced if the solar PV system is installed on a property that is not your primary residence.

Types of Solar Energy Systems Covered

Contrary to popular belief, you can get a tax credit for more than just installing solar panels being added to your home. Your able to also get the tax credit for solar water heaters and solar energy storage devices.

Solar Water Heaters

A solar water heater will use the sun's thermal energy to heat the fluid in solar collectors and that fluid will pass through a heat exchange in a storage tank. This transfers the heat from the sun to the water being stored. These types of systems are very prevalent in colder regions.

Solar Energy Storage

There are devices, such as solar batteries or solar generators, that reserve energy for later consumption. This device is charged from the solar panels attached to it and allows you to use this energy during peak usage hours, power outages or even just at night if you're running low on power.