AS OF AUGUST 2022, THE AMOUNT HOMEOWNERS CAN SAVE WITH THE ITC HAS INCREASED TO 30% OF THEIR TOTAL INSTALLATION COSTS.
Did you know you can get up to 26% of the cost of your solar energy system back? For a solar energy system that costs $25,000, that’s $6,500 you can save!
It might sound too good to be true, but as part of moving the United States forward towards a clean energy future, homeowners who make the switch to solar can claim a tax credit that helps make solar even more affordable.
But we all know taxes can be complicated. So how does the tax incentive work, and how can you claim it on your 2021 tax return? Let us walk you through both of those questions so you’re ready well before April.
What is the Federal Solar Investment Tax Credit (ITC)?
A tax credit in general is a credit you can claim that reduces the amount of taxes you owe. When you’ve already paid your taxes for the year and claim a credit, that winds up increasing the amount of money you receive as your tax return for that year’s filing.
The Federal Solar Investment Tax Credit for homeowners who have installed solar on their homes is a credit you claim on your income tax return. Until the end of 2022, this tax credit allows homeowners to claim 26% of the total cost of solar installed on their home. The tax credit covers more than just the cost of panels, and includes things like labor costs and permitting fees.
In 2023 the tax incentive reduces to just 22%, and currently will expire completely at the end of 2023. If you’re thinking about making the switch to solar, now is the time!
Who Can Claim the Solar Investment Tax Credit?
Homeowners who have solar installed before December 31st, 2022 can claim a credit up to 26% worth the cost of their system. The solar needs to be at your primary or secondary residence, and the system you’re installing must be new and being used for the first time.
Some things to keep in mind:
- You must own the system, whether through financing or having paid for the total cost upfront.
- Leased systems do not count towards claiming the tax credit.
- This specific credit cannot be claimed on residential properties that you rent to others UNLESS you live at that location at least half the time.
- You can claim the credit even if your tax liability (the amount you owe in taxes) is less than the credit amount you’d claim. The current year you simply wouldn’t owe any federal tax, and the next year you can carry the credit forward to reduce your tax liability by whatever amount is left on the credit.
For instance, if you purchase or finance a solar energy system worth $25,000, you can claim up to $6,500. If your tax liability is $5,000 for 2022, you wouldn’t owe any federal taxes, and in 2023 you’d have another $1,500 from the original credit to put towards lowering your tax liability.
How Do Homeowners Claim the Solar ITC?
For most homeowners, you can simply work with your accountant or tax preparer to make sure they complete tax form 5695 and file it with your income tax return. But if you’re going to do your taxes yourself, we have some helpful tips.
- First, make sure you keep track of any receipts for work done in relation to having your system installed. The qualified solar costs which you’re allowed to claim on your return include electrical, roof work, permitting and inspection costs, and energy storage costs, in addition to the panels and inverters of your solar energy system. The gross cost of your project is used to determine what you can claim as the tax credit.
- Second, make sure you know if you’re going to be claiming any other tax credits. Every tax credit you claim reduces your tax liability, so if you’re claiming a child tax credit, adoption tax credit, mortgage interest credit, or other credit that will reduce your tax liability, be sure to know how much you’re claiming for each credit before starting to work on tax form 5695.
You can use this credit limit worksheet to help figure out that number before starting to fill out form 5695. The relevant worksheet section is on page 4.
The relevant parts of form 5695 when claiming a credit for installing solar at your home are highlighted here:
For a thorough set of step-by-step instructions and other worksheets, head to the page the IRS maintains for form 5695.
Go Solar Now and Save More!
As we mentioned above, the ability to claim 26% of the total cost of installing a solar energy system at your home only lasts until the end of 2022. After that, homeowners will have just one more year to claim 22% of the total cost before the tax incentive is set to terminate.
At first glance, 4% might not seem like much – but for a system that costs $25,000, waiting until 2023 to go solar means you lose out on recouping $1,000 of your costs!
Purelight Power can help you design a solar energy system designed for your home’s needs. We make solar even more affordable by wiping out your power bill, so your monthly utility costs go towards owning your solar system rather than renting dirty energy from a power company.
With a quick 30 second survey, you can find out if your roof qualifies today!
