Federal Solar Tax Credit

Updated March 6, 2024 | Reading Time: 7 minutes

What is the Federal Solar Tax Credit?

The federal solar tax credit is a residential tax incentive that makes solar systems eligible for deduction on federal income taxes. This program is the largest and most popular solar incentive in the United States.

Systems installed during 2022-2032 are authorized for a 30% tax credit. There is no maximum amount that can be claimed, meaning even the largest solar systems are qualified for this incentive.

Who is Eligible for the Federal Solar Tax Credit?

  • Your solar PV system must have been installed between January 1, 2017, and December 31, 2034.
  • The solar PV system must be situated at a residence in the United States that you own.
  • You qualify if you own the solar PV system, meaning you purchased it with cash or through financing, and you are neither leasing the system nor paying a solar company to purchase the electricity generated.
  • You qualify if you purchased an interest in an off-site community solar project, provided the electricity generated is credited against and does not exceed your home’s electricity consumption.
  • The solar PV system must be new or being used for the first time. The tax credit is applicable only to the “original installation” of the solar equipment.

What Expenses are Included in the Federal Solar Tax Credit?

  1. Solar PV panels or PV cells
  2. Contractor labor costs for onsite preparation, assembly, or original installation, encompassing permitting fees, inspection costs, and developer fees
  3. Balance-of-system equipment, covering wiring, inverters, and mounting equipment
  4. Energy storage devices with a capacity rating of 3 kilowatt-hours (kWh) or more (for systems installed after December 31, 2022). If installed in a subsequent tax year, they remain eligible.
  5. Sales taxes on eligible expenses.

How Much Can You Receive from the Credit Each Year?

You are only eligible to receive a credit amount equal to your tax liability per tax year. Therefore, if your liability is $4,000 and your tax credit is $5,000, your liability for this year will be zero but you will not be entitled to that remaining $1,000 until the next tax year.

Does the Tax Credit Roll Over?

Yes, your federal solar tax credit can carryover will carryover to the next tax year if you have an outstanding credit balance. Credits will continue to roll over until they are used up or until the end of the program in 2032.

How to Claim Your Tax Credit

File Form 5695, Residential Energy Credits with your tax return the same tax year of your solar installation. Simply purchasing a system does not qualify.

Maximize Your Solar Savings

Act Promptly

The federal solar tax credit is set to gradually decrease over the coming years. Installing solar panels promptly ensures that homeowners can take advantage of the higher credit percentages.

Explore Financing Options

Financing solar installations through loans or leases can be a strategic move. While the initial investment might seem daunting, the long-term savings on electricity bills, coupled with the federal tax credit, can make solar energy a cost-effective choice.

Include Additional Upgrades

Consider incorporating energy-efficient upgrades along with the solar installation. This not only enhances the overall energy efficiency of the property but may also qualify for additional tax credits or incentives.

Consult with a Tax Professional

Tax laws can be complex, and seeking advice from a tax professional ensures that homeowners navigate the process smoothly. Tax professionals can provide personalized guidance, helping homeowners make informed decisions to maximize their savings.