What Are Tax Credits For Solar Panels?

Tax day is over but you may still be curious if you qualify for tax credits for solar panels for the 2024 year, if maybe you missed a qualifying attribute, or if you can qualify for an upcoming tax filing year. 

Tax credits for solar panels are federal tax credits you receive after installing solar panels at your location.

Solar PV systems installed in 2020 and 2021 are eligible for a 26% tax credit. The ITC extension was raised to 30% if the solar system was installed between 2022-2032, with systems installed on or before December 31, 2019 also eligible. The qualifying amount will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. 

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As of yet, the tax credit for solar panels expires starting in 2035. There is no max that can be claimed. Let’s take a closer look at tax credits for solar panels here at Currents.

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Qualifying for a Tax Credit for Solar Panels

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To qualify for a tax credit for solar panels, you would need to:

• Install your solar system within the year. Simply purchasing the solar panels is not enough. In order to qualify for a tax credit for solar panels, you would need to also install the system within the year you qualify to receive the 22 - 30% tax credit.

• Have solar panels at your location, whether that is on the roof of a building or in a yard. 

• Generate electricity with your solar system, whether it’s connected to the grid or not.

• Finance or purchase the system in total. You can claim the PV system tax credit based on the full cost of the system, but expenses like financing, fees, and warranty expenses are not included. Financing still qualifies for a tax credit as long as the system has been installed.

• Have a home or vacation property. If the location is your rental home or a portion is a home office/business is in the building, then you may need to file the federal solar tax credit on a business ITC. “When the amount spent on the solar PV system is predominantly used for residential rather than business purposes, the residential credit may be claimed in full without added complications. However, if less than 80% of the solar PV system cost is a residential expense, only the percentage that is residential spending can be used to calculate the federal solar tax credit for the individual’s tax return.”

• Contribute to the costs of a solar PV system, such as participating in a program in a condominium. This does not include claiming a solar system installed on a rental property that you rent, as the landlord would own the system and would claim the credit.

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Now that you have the qualifying aspects for getting a tax credit for solar panels, let’s take a look at some frequently asked questions. 

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Frequently Asked Questions

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You may qualify for solar tax credits with your recent or upcoming installation of solar panels. Here are some frequently asked questions that might help. 

How Does the Solar Tax Credit Work?

The solar tax credit works by being applied to your federal tax refund. You can receive up to 30% of the cost of installing your solar system when you fill out the IRS Form 5695.  

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Do You Get the Solar Tax Credit Back in a Refund?

The tax credit is nonrefundable. After you receive the tax refund, you won’t receive any additional benefits. It will apply to your tax bill but will not be given out to you directly, but it can be applied to the next year’s tax bill if there is money left to be carried over.

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How Much Can You Write Off for Solar Panels on Taxes?

You can write off up to 30% of the cost of installing your solar panels on your tax return in an investment tax credit. The tax credit is an incentive to encourage investments in the area.

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How Many Years Can You Claim the Solar Tax Credit?

You can claim the solar tax credit for one year, and if you have any remaining amount leftover, you can apply this to your next year’s tax refund.

What is the Maximum Incentive Amount for the Solar Tax Credit?

The maximum incentive amount for the solar tax credit is 30%, although this number is decreasing to 26% in 2033 and 22% in 2034 and decreased to 26% in 2020 and 2021.

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How Much is the Solar Tax Credit Worth?

The solar tax credit is worth up to 30% of eligible costs.

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How Much Can Families Save on the Electricity Bills with the Solar Tax Credit?

The solar tax credit can reach $7,500. It includes solar electric, solar water heaters, small wind energy, biomass fuel, fuel cells, and geothermal heat pumps. It is not just related to solar panels. 

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Sources

IRS Residential Energy Credits  

A Guide to Community Shared Solar, U.S. Department of Energy (DOE)