What is the federal solar tax credit?
The Residential Clean Energy Credit is a federal solar tax credit for homeowners who purchase solar panels. The tax credit returns 30% of your solar system cost after you file your taxes.
The federal tax credit and the decreasing cost of solar panels have made purchasing a home solar system much more attainable in the past decade. This process is set to continue over the coming years. Congress renewed the Residential Clean Energy Credit in 2022 as part of the Inflation Reduction Act, guaranteeing its current rate through 2032. It will drop to 26% in 2033 and 22% in 2034, expiring in 2035 unless Congress renews it.
History of the federal solar tax credit
Congress passed the Solar Investment Tax Credit (ITC) in 2005 as part of the Energy Policy Act and officially enacted it in 2006. Since then, the solar industry in the U.S. has grown 200 times in size, according to the SEIA.
The Solar ITC was initially set to expire at the end of 2007, but Congress has voted to extend it several times since then. In December 2020, Congress agreed to extend the credit at 26% until 2024.
The latest development came in 2022 when Congress voted to create the Residential Clean Energy Credit. This new program returned the amount customers can claim on their solar panel purchase to 30% and lengthened the lifespan of the tax credit by over a decade. Currently, the tax credit is set to expire in 2035.
Solar tax credit savings
The federal solar tax credit can help to significantly reduce the total net cost of a home solar system. The average cost of a solar panel system in the U.S. is $31,558, according to the Lawrence Berkeley National Laboratory. With this price in mind, here’s a breakdown of how much the 30% solar tax credit could help you save on a residential solar system.
|Cost of a Solar System||Solar Tax Credit||Cost After Tax Credit||Solar Tax Savings|
Given that Congress has guaranteed the credit at 30% through 2034, you have plenty of time to consider your solar panel options and take advantage of the big savings the credit can bring you. ChooseEnergy offers a wide range of resources to learn about the solar energy industry to make the right decision for you.
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How the solar tax credit works
You are eligible for the federal solar tax credit if you purchase solar panels on your primary or secondary residence. This covers several types of homes, including single-family homes, condos, houseboats, and mobile homes.
You are eligible for the solar tax credit if:
- You purchased a home solar system installed between January 1, 2022 and December 31, 2032.
- You own the solar system — meaning you did not sign up for a solar lease or a solar power purchase agreement (PPA).
- The solar system is new. You cannot claim the solar tax credit if you bought a house with existing solar panels.
- The solar system is installed on your primary or secondary home located within the U.S.
How to claim the solar tax credit
There are a few steps you need to complete to claim the solar tax credit. Here is a breakdown of how to access savings from the Residential Clean Energy Credit:
- Confirm you are eligible for the solar tax credit. The U.S. Office of Energy Efficiency and Renewable Energy offers a more detailed look into who is eligible for the tax credit.
- Fill out IRS form 5695. This form confirms that you qualify for the solar tax credit. The following are the documents you will need, including instructions for filling out the form:
- Add your renewable energy credit information to your Form 1040 when doing your taxes. If you hire an accountant to do your taxes, they should be familiar with these forms, and you can discuss the solar tax credit with them. If you are doing your taxes yourself, you can research videos explaining how to fill out form 5695. Online tax software like TurboTax should also have this form available.
Federal solar tax credit FAQs
When will the Residential Clean Energy Credit expire?
The solar tax credit will expire for residential customers in 2035 unless renewed by Congress beforehand. The rate you can claim will drop from 30% to 26% in 2033 and to 22% in 2034.
Can I combine the federal solar tax credit with state and local solar incentives?
Many states offer solar incentives for residential customers. If there are local solar incentives and rebates available, you can combine them with the federal tax credit. Visit your state’s solar page — listed at the end of this page — to learn more about incentives and credits by state.
What is covered under the solar tax credit?
The Residential Clean Energy Credit covers the following items:
- The cost of the solar panels
- Labor and installation costs such as fees for permits, inspection costs, and developer fees
- Additional solar equipment, including wiring, mounting, inverters, and solar hardware
- Solar batteries, as long as the batteries get 100% of their power from an onsite solar system
- Sales tax on eligible solar expenses
Will I get a refund if the tax credit exceeds my tax liability?
Because this credit is nonrefundable, you will not get a refund for the amount of the tax credit if it exceeds your tax liability. However, any unused amount of the tax credit can carry over into the next tax year. You can read more details about this in the U.S. Office of Energy Efficiency and Renewable Energy’s guide.
Can I claim the federal solar tax credit if I am not connected to the power grid?
Yes, you are still eligible to claim the solar tax credit if you are not connected to the power grid.
Where can I ask questions about the Residential Clean Energy Credit?
According to the Office of Energy Efficiency and Renewable Energy, you can ask questions using one of the contact methods below:
- By phone: (800) 829-1040
- By address: Internal Revenue Service (IRS), 1111 Constitution Avenue, N.W., Washington, D.C. 20224