There are many questions about installing solar on homes. One of the biggest is, "What is the solar tax credit?"
This investment tax credit (ITC) — referred to as the "solar tax credit" — allows you to deduct 30 percent of the cost of your solar panel project costs from your federal taxes. This applies to both residential and commercial solar panel systems.
You must own your solar panel system to take advantage of the solar tax credit.
Example of the solar tax credit
The average solar panel system in the U.S. is about 6 kW and will cost $19,200 here at Solar Wave. That $19,200 includes everything that goes into your solar panel project.
| Line item | Amount |
|---|---|
| System cost (6 kW, all-in) | $19,200 |
| Solar tax credit (30%) | $5,760 |
| Net cost after credit | $13,440 |
Are there any solar costs that are not eligible for the 30%?
Anything that has to do with installing a fully functioning solar panel system for your home or business can apply for the 30 percent savings.
It is important to note that in most cases you must follow your local zoning and permitting requirements to qualify for your solar tax credit. If you have a professional design and install your system, you have nothing to worry about. You can even add upgrades such as battery storage or smart home monitoring systems to your solar installation, which will also apply to the credit.
How does the solar credit work?
Your solar tax credit is just that — a tax credit. This is a dollar-for-dollar reduction of the federal income tax you owe.
For example, say you owe $10,000 in taxes this year. Continuing the example above, your solar tax credit is $5,760, meaning you would now only owe $4,240 in taxes this year after the credit is applied.
This is different than a refund, because you have to owe taxes to claim the incentive. Since most people owe taxes, most people end up being eligible. Another great feature: if your solar tax credit is higher than the taxes you owe this year, you can apply your unused tax credit in the following year.
How long will the solar tax credit last?
The Inflation Reduction Act (IRA) increased the federal tax credit for solar energy back up to 30% and extended the credit out to 2032. A lot of the specifics of the Inflation Reduction Act, as it relates to solar energy, are still being written, and incentives for some unique scenarios do exist. It is always best to consult with a Solar Wave expert about your scenario to get relevant information on incentives that may be unique to you.
How to claim your solar tax credit
Once you have gone solar, you will need to file IRS form 5695 to claim your residential renewable energy tax credit. We always recommend consulting with a tax professional during your preparations to make sure you are filing your form correctly.
If you file your own taxes, then it's as simple as these few steps:
- Know your total solar panel installation cost (provided by your solar installer).
- Complete IRS form 5695.
- Add your credit to your typical form 1040.
That's it. We hope this serves as a great introduction to the solar tax credit and helps in your research process. For more articles like this, visit our solar library here.
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Steven Weaver
Steven is the founder of Solar Wave and has dedicated the last seven years of his career to the solar industry. After consulting for multiple solar companies across the US he founded Solar Wave in Denver, Colorado. Solar Wave is on a mission to continue the rapid deployment of residential and commercial solar in Colorado by offering the best solar equipment and installation services at the lowest prices possible.
