Federal Solar Tax Credit
Save your receipts! The ITC (Investment Tax Credit), aka the Federal Solar Tax Credit, enables you to deduct over 1/4 of your solar energy installation costs! The ITC covers both residentail and commercial properties, and has no cap, meaning no matter how much you spend installing your system, you can deduct 26% thanks to Uncle Sam! Many additional states offer their own solar credits, so look into your local tax laws to see if you qualify for further tax savings.
Be sure to save your receipts and file for this deduction as soon as possible so you don’t forget, because each year, the credit goes down. In 2021, the percentage will be 22%, and in 2022, it drops to 10%. Additionally, in 2022, residential systems will no longer qualify for the credit. So it’s important to make sure you take advantage of this savings, especially if you’re a homeowner as this facet of the credit will expire at the end of 2021.
You are eligible for this credit as long as you own your solar energy system. If you don’t have enough overall tax liability to redeem the entire credit in a single year, the leftover credits can be rolled over as long as the ITC is still in effect.
However, keep in mind that if you sign a lease or a Power Purchase Agreement with an installer, you cannot claim the tax credit as you are not the owner in this case.
Claiming the Credit
To claim the credit, you’ll need to fill out IRS Form 5695 for “Residential Energy Credits”. Once you determine your eligibility, you’ll list your costs on the form, and then multiply the total by 26% (if filing in 2020) to determine your total tax credit value.
You’ll also need to determine your tax liability. Remember, if you don’t have enough tax liability to claim the full credit, the remainder can be rolled over to the following year, as long as the credit is still in effect.
You can then add your credit to your normal 1040 Tax Form by adding the total tax credit amount to line 53 of your 1040 (or line 50 of Form 1040NR). Remember to include Form 5965 when you submit your tax return.
And that’s all you need to claim the credit! So don’t leave money on the table, make sure to save your receipts and documentation so you can get your federal solar tax credit.