Solar panels are a great way to save money. They are energy efficient and reduce the impact of electricity production on the environment. You can get them installed on the roof of your house to reduce your reliance on the electric grid. Once installed, solar panels help passively produce energy from the sunlight — as a result, you save money over time.
Choosing a provider among the many on the power grid is no easy task. There are many factors to consider — there can be hidden benefits or costs that make it hard to feel confident in your choice, but you’re not alone. Power Wizard has the tools and information to help you decide if switching to solar energy is right for you.
Purchasing solar cells and having them installed can be expensive. It’s important to know about their costs, but some solar incentives help make the switch easier.
Table of Contents
What Are Solar Energy Credits?
Requirements for a Solar Federal Tax Credit?
How Do Other Energy Incentives Affect the Federal Solar Tax Credit?
How to Claim Credits on Your Federal Tax Return
Receive More Money Back With Solar Power Systems
What Are Solar Energy Credits?
The federal government wants to encourage people to switch to more sustainable sources of energy production. Solar energy credits are financial incentives provided by the government to help ease your switch to renewable energy.
You can claim a federal solar energy credit when you file your federal income tax returns for the year. They are not considered tax deductions. By applying these, you can reduce the amount of tax you owe but not increase your tax refund amount. If the amount you owe in federal income taxes is less than the credit you receive, the excess credit counts toward your taxes next year and continues to roll over for up to five years.
The amount the federal government credits come from the costs associated with your solar panel installation. You can receive a credit of up to 26% of the installation costs of your solar panels. For example, if your installation costs you $20,000, you’d be eligible for up to $5,200 in federal tax credit. There is no set limit to the amount that you can claim on your solar costs.
What are the Eligibility Requirements for a Solar Federal Tax Credit?
Residential energy credits cover everything you need to switch to solar power. Solar panels, labor costs, and any other equipment required for installation count toward your tax credit.
Power Wizard helps you feel confident when learning about solar tax credits.
Date of Solar Installation
Any solar energy system installed between January 1, 2006, and December 31, 2023, is eligible for a solar tax credit. The maximum amount of credit you can receive will reduce to 22% in 2023. Unless the federal government renews this program, you’ll no longer be able to claim a solar tax credit starting in 2024. If you’re thinking about switching to solar, you should do so while you can capitalize on this credit.
Original Installation of Solar Equipment
Qualified customers are those with new or previously unused solar panel units installed. You won’t be eligible if you purchase a used system or reinstall an already owned unit at a new residence. As long as the system is unused, the date of manufacture will not affect the amount you can claim on your renewable energy certificate.
Location at Primary or Secondary Residence
Your residence location must be in the United States to be eligible for a solar tax credit. Solar energy systems installed at your principal residence and secondary residence are both eligible for residential energy credits, even if the two systems were purchased from separate vendors in different states. An off-site community solar project will also be eligible if the electricity it generates is credited against your home’s electric consumption but doesn’t exceed it.
Ownership of the Solar Energy System
Residential customers must own their panel system installed to claim these solar incentives, but you don’t need to be the homeowner to claim a federal solar tax credit. You can claim a solar panel tax credit even if you live in a housing co-op or condo. If you purchase the solar panels and pay for the installation costs, those values are what you’d use to calculate your solar tax credit.
You can’t claim the credit if you’re leasing a solar panel system or if you purchase energy from a solar energy system owned by another individual or company. Also, if you are renting a property, you can’t claim a credit on solar panels their landlords install.
How Do Other Energy Incentives Affect the Federal Solar Tax Credit?
If you receive a rebate or subsidy for your solar panel system, you should deduct that amount from your installation costs before calculating your energy efficiency tax credit. If your installation costs are $8,000 and you received a $1,000 subsidy, your tax credit would be up to 26% of $7,000.
Any cash or goods you receive as an incentive to switch to solar energy or use a specific provider is treated differently. The dollar amount or value should be added to your taxable income when you file your taxes. Because this will increase your taxable income, the amount you owe the federal government might also increase. In this case, your solar panel tax credit won’t be affected, and you’ll still be able to claim the total amount of your costs.
How to Claim Credits on Your Federal Tax Return
You can file for a solar tax credit with the rest of your annual IRS tax filing.
If you’re a residential owner, you’ll need the solar contract from your provider and IRS Form 5695. The first part of this form calculates your credit. On line 1, enter the total amount of your solar panel installation cost as written in your solar contract. If you have other renewable energy sources such as geothermal or wind generating on your property, note those costs on lines 2-5. Finally, complete the calculations on lines 6a and 6b. Next, fill out the Residential Energy Efficient Property Credit Limit Worksheet, and add the required data on line 14.
Keep your other tax paperwork should be handy in case you need to reference them. Next, complete the calculations for line items 15 and 16. If you’re filing your income tax with Form 1040, note the exact number on line 15. You’ll need it for line 5 when filling out your 1040.
When you file your taxes, you should consult with a professional. They might be aware of other tax incentives in your region that can help you save money on top of the federal credits.
Receive More Money Back With Solar Power Systems
Switching to solar power is a great way to reduce your energy bill. You own the device, and the sun doesn’t charge you just for shining. Because you own your energy source, you insulate your power bill from the effects of inflation.
A solar tax credit, however, isn’t the only variable when switching to solar power. Choosing the right plan with the right provider can save you hundreds of dollars on your yearly power bill. You also must consider the type of plan you currently have.
Power Wizard’s experts have the experience and knowledge to help you find the best plan and start saving money today. With their help, find the energy plan that best fits your budget or use an expert to handle all your energy needs.
