The Federal Solar Tax Credit is a program designed to incentivize homeowners to invest in solar energy systems. By installing a solar system, homeowners can potentially save up to 30% of the cost of their solar system through the federal solar tax credit. The tax credit is a dollar-for-dollar reduction in the amount of income tax a homeowner would otherwise owe, which means that claiming a $1,000 federal tax credit reduces the homeowner's federal income taxes due by $1,000.
The federal solar tax credit, also known as the Investment Tax Credit (ITC), can be claimed on federal income taxes for a percentage of the cost of a solar PV system paid for by the taxpayer. Other types of renewable energy are also eligible for similar credits, but they are beyond the scope of this guidance. Let’s take a look at the biggest changes and what they mean for Americans who install rooftop solar:
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The ITC increased in amount and its timeline has been extended. Those who install a PV system between 2022 and 2032 will receive a 30% tax credit. That will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034. If you’ve already installed a system in 2022, your tax credit has increased from 22% to 30% if you haven’t already claimed it.
- The solar+storage equipment expenses included in the ITC have expanded. Now, energy storage devices that have a capacity rating of 3 kilowatt hours or greater are included. This includes stand-alone storage, but here’s why you should pair it with solar.
- To be eligible for the federal solar tax credit, the solar system installation must be complete during the tax year. There is no maximum amount that can be claimed.
To be eligible for the tax credit, homeowners must own the solar PV system, meaning they purchased it with cash or through financing but are neither leasing the system nor paying a solar company to purchase the electricity generated by the system. Alternatively, homeowners may have purchased an interest in an off-site community solar project, provided that the electricity generated is credited against, and does not exceed, the home's electricity consumption.
Expenses that are eligible for the tax credit include solar PV panels or PV cells, contractor labor costs for onsite preparation, assembly, or original installation, including permitting fees, inspection costs, and developer fees, balance-of-system equipment, including charge controller, wiring, inverters, and mounting equipment, batteries, and energy storage devices that have a capacity rating of 3 kilowatt-hours (kWh) or greater (for systems installed after December 31, 2022).
In summary, the federal solar tax credit is a great opportunity for homeowners to save money while reducing their carbon footprint. If you are considering installing a solar system, consult with your tax professional to determine your eligibility for tax credits.
Check out the Homeowner’s Guide to the Federal Tax Credit for Solar Photovoltaics for more information on the ITC including eligibility requirements and how to claim it on your taxes.