Solar Rebates And Incentives

What is a Tax Credit?

A tax credit is a reduction in the amount of income tax you owe, applied dollar-for-dollar. For example, if you claim a $1,000 tax credit, your income tax liability decreases by $1,000. The federal solar tax credit, also known as the Investment Tax Credit (ITC), is a specific tax credit offered to individuals who invest in solar PV systems.

What is the Federal Solar Tax Credit?

The federal residential solar energy credit allows individuals to claim a tax credit for a percentage of the cost of their solar PV system. The installation of the system must be completed within the specified tax year. The credit percentage varies based on the installation date: 26% for systems installed in 2020 and 2021, 30% for systems installed between 2022 and 2032, 26% for systems installed in 2033, and 22% for systems installed in 2034. Systems installed in 2035 and beyond are not eligible for the tax credit unless renewed by Congress.

Who is Eligible for the Federal Solar Tax Credit?

To be eligible for the federal solar tax credit, the following criteria must be met:

  1. The solar PV system must be installed between January 1, 2017, and December 31, 2034.

  2. The solar PV system must be located at a residence in the United States.

  3. The taxpayer must own the solar PV system (not leased) or have purchased an interest in an off-site community solar project, with the generated electricity credited against their home's consumption.

  4. The solar PV system must be new or being used for the first time.

What Expenses are Included?

The following expenses are eligible for the federal solar tax credit:

  • Solar PV panels or PV cells (excluding the fan itself for attic fan systems)

  • Contractor labor costs for preparation, assembly, and installation

  • Permitting fees, inspection costs, and developer fees

  • Balance-of-system equipment (wiring, inverters, mounting equipment)

  • Energy storage devices with a capacity rating of 3 kWh or greater (for systems installed after December 31, 2022)

  • Sales taxes on eligible expenses

How Do Other Incentives Affect the Federal Tax Credit?

Subsidies provided by utilities to install a solar PV system are generally excluded from income taxes, reducing the system costs before calculating the tax credit. However, payments received for excess generated electricity delivered to the utility's grid (net metering credits) do not affect the tax credit. Payments for renewable energy certificates may be considered taxable income but won't reduce the federal solar tax credit. State tax credits and rebates generally don't affect the federal tax credit, but they may impact your taxable income.

How Do I Claim the Federal Solar Tax Credit?

To claim the federal solar tax credit, consult a tax professional for advice, ensuring your eligibility. Complete and attach IRS Form 5695 to your federal tax return (Form 1040 or Form 1040NR) and follow the instructions

provided on the form.

Note: The information provided is for general guidance, and it's advisable to seek professional tax advice to understand the specific implications for your situation.