If you’re switching to solar energy, you may be wondering if you can claim any tax credits or incentives. The federal solar tax credit is one of many monetary incentives available for switching to solar energy. It provides homeowners with the opportunity to claim a one-time deduction on the cost of setting up a residential, photovoltaic (PV) solar energy system.
Depending on when the panels were placed in service, the solar investment tax credit can reduce up to 30% of the costs incurred. For example, a $15,000 solar panel system that was installed between 2022 and 2032 may qualify for a 30% deduction (equivalent to $4,500, bringing the total expense down to $10,500). However, the same solar system installed in 2033 qualifies for a 26% deduction (equivalent to $3,900, which would bring the total expense down to $11,100).
But how exactly does the solar tax credit work? And are there any Texas solar panel incentives? Read more for answers to all your questions about claiming the solar panel tax credit.
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Tax Credits 101
Before we dive in, let’s refresh ourselves on how a tax credit works. Tax credits reduce your taxable income, dollar-for-dollar. For example, claiming a $2,000 federal tax credit slashes your federal income tax liability by $2,000.
Understanding the Federal Solar Tax Credit
The federal tax credit for solar panels was established by Congress in 2005 through the Energy Policy Act. This tax credit was devised to help homeowners make environmentally conscious home modifications, as part of the larger goal to assist the United States in diversifying its energy resources. The solar tax credit was originally set to expire in 2007, but due to its popularity and success, Congress has renewed it several times.
Is There a 2024 Federal Solar Tax Credit? 2022 Extension Explained
In 2022, Congress extended the solar purchase tax credit though 2034. This extension provides a 30% credit for residential systems installed in 2022-2032, and a 26% credit for those installed in 2033, and a 22% credit for those installed in 2034. Unless Congress renews it, the solar tax credit is set to expire in 2035.
What Is Covered?
The following expenses are included under the tax credit:
- The cost of solar panels and necessary equipment such as inverters, mounting hardware, and wiring.
- Labor expenses for assembly, installation, inspection, preparation, permitting, and development.
- Home batteries charged exclusively by the solar panels.
- Eligible sales taxes.
As with any tax-related or financial decision, be sure to consult professional advice.
Federal Solar Tax Credit: How to Claim It
Once you confirm you qualify for the credit by consulting a tax professional, you can claim it by filling out IRS Form 5695 and submitting the form with your federal tax return.
Who Qualifies for the Solar Panel Tax Credit?
Here is a list of criteria for qualifying for the residential solar tax credit:
- The PV system was placed in service on your primary or secondary U.S. residence between 2006 and 2023.
- You own the PV system through an upfront purchase or financed loan.
- The PV system is a new, original installation.
FAQ About Solar Tax Credits
Is there a Texas solar tax credit?
While some states have their own solar tax credits, there is currently not a separate solar panel tax credit in Texas in 2024. The only tax credit for solar panels available in Texas is the federal one.
Are there other Texas solar incentives?
There are no specific solar incentives in Texas. However, there are still ways to save on your solar energy use with Net Metering Programs and a Statewide Property Tax Exemption to alleviate some of the expenses of switching to solar.
Related: Discover the benefits of solar energy.
Can the solar tax credit carry over?
If you are eligible but don’t owe taxes for that calendar year, a tax professional may advise you to carry the credit forward.
Will the solar tax credit increase my tax refund?
The federal solar tax credit is nonrefundable. Even if you don’t owe taxes during the calendar year, the solar credit will not increase your tax refund. Instead, you can carry it over under the advice of a qualified tax professional.
Can I claim the solar tax credit more than once?
No, it is a one-time tax credit.
How much is the tax credit for solar panels worth?
The amount you will save from the tax credit depends largely on your individual circumstances, including your home energy needs and when your panels were installed.
Let’s imagine a scenario where a solar panel system cost $20,000 and was installed in 2022, qualifying for the 30% credit. In this situation, the 30% credit would be worth $6,000.
Am I eligible for the tax credit if I have a home office?
Generally, having a home office doesn’t hinder your ability to claim the federal solar tax credit. If residential purposes account for 80% of the solar cost, you can generally claim the full amount on your individual tax return. But if your solar use accounts for more than 20% of a business expense, you can only claim the percentage of residential spending for your individual return. However, the business portion may be eligible for a separate tax credit on your company’s tax return.
Talk with a certified CPA about how best to apply for the solar tax credit.
If I finance my solar panels, am I still eligible for the tax credit?
Yes, if you are financing your solar system and are under contract to pay the full expense, you can still qualify for the solar tax credit. However, associated expenses like interest owed on financing or extended warranties are not eligible.
How does solar energy work?
Want to know more about solar technology? Learn about solar energy and how solar panels work.
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