Completing a solar panel installation for your home can be an intimidating process. Overall installation costs, including labor costs, for solar panel systems can seem expensive. Moreover, you may feel lost until you receive some basic information from your solar panel installer.
However, in addition to providing relief from your electricity bill, a solar energy system can save you significant money in the long run. Several tax credits for installing solar panels, including a federal tax credit in the United States, can offer immediate incentives for completing a solar panel installation.
So how do you claim the available tax credits? At eEquals, our team of solar energy professionals can help you get tax credits for installing solar panels on your property.
And if you’re searching for experienced solar companies in St. Louis, MO, look no further than eEquals for the best service possible. Let’s cover everything you need to know about getting tax credits for installing solar panels.
What Is the Residential Clean Energy Credit?
To encourage Americans to use solar panels, the United States government offers tax credits for installing solar panels. The Inflation Reduction Act extended the existing solar tax credit through 2034. This tax credit includes the installation of solar systems on residential properties in addition to an increase in the tax’s value.
How Does the Federal Solar Tax Credit Work?
When you buy solar equipment for your home and have tax liability, you can generally claim a solar tax credit to reduce your tax bill. The Residential Clean Energy Credit is non-refundable, so it offsets your income tax liability dollar-for-dollar. However, any excess credit won’t be refunded.
If your credit exceeds your tax liability for the year, you can use it in future years as long as the credit stays in effect. The solar tax refund has no income limits, so all taxpayers are eligible to claim the credit. However, you must invest in solar equipment for your residential home within the country.
When you buy power generated by solar equipment using a lease agreement or power purchase agreement, you can’t claim the credit on your federal tax return because you’re not the system owner.
What Costs Are Covered By the Solar Tax Credit?
Energy-saving equipment included in the Residential Clean Energy Credit is the following:
- Solar-powered equipment that produces electricity or heats up water.
- Solar power storage equipment for the previous tax year with a capacity of at least 3-kilowatt hours (kWh) beginning in the current year.
- Qualifying installation and labor costs.
The tax credit doesn’t apply for systems you lease or systems that heat a swimming pool or hot tub.
How Can I Get the Solar Tax Credit?
To claim the solar tax credit on your tax return, you must meet the following eligibility criteria:
- Your solar panel installation should occur between January 1, 2017, and December 31, 2034.
- The solar equipment must be at a residence you own within the United States.
- The solar equipment is new or being put into use for the first time. From there, you must meet one of these two requirements to qualify for the solar tax credit:
- Buy the solar system with cash or using financing that’s not a lease or an agreement to pay a solar company for electricity produced by the system.
- Invest in a community solar project separate from your residential property. The electricity must be credited against and doesn’t exceed your home’s electricity consumption.
What Are the Amounts of Residential Solar Taxes?
When you install renewable energy equipment for your home, it can qualify you for the Residential Clean Energy Credit up to 30% of your total qualifying cost. However, it depends on the year you buy it and activate it.
- 30% for equipment activated in tax years 2017 through 2019
- 26% for equipment activated in tax years 2020 through 2021
- 30% for equipment activated in tax years 2022 through 2032
- 26% for equipment activated in 2033
- 22% for equipment activated in 2034
As of now, the credit is scheduled to end in 2034. You deduct the amount directly off your total tax as a credit rather than as a deduction from your taxable income.
Claiming the Solar Tax Credit for Property You Own
You can’t claim Residential Clean Energy solar tax credits for installing solar panels at rental properties you own. However, if you live in the house for part of the year and use it as a rental when away, this is possible.
- You’ll have to reduce the credit for a vacation home or part-time rental property to reflect the time you’re not there.
- For instance, if you live there for three months a year, you can only claim 25% of the credit. If the system costs $10,000, the 30% credit would be $3,000, and you could claim 25% of that, or $750.
- $10,000 system cost x 0.30 (30% credit) = $3,000 full credit amount
- $3,000 credit amount x 0.25 (25% of the year) = $750 partial credit amount
Filing Requirements for the Solar Tax Credit
To claim the credit, you must file IRS Form 5695 as part of your tax return. To do so, you’ll calculate the credit on Part I of the form, then enter the result on your tax return form 1040.
- If in 2022 you end up with a more considerable credit than you have income tax due — a $3,000 credit on a $2,500 tax bill, for instance — you can’t use the credit to get money back from the IRS. Instead, you can carry the unused portion of the credit over to the following tax year. In this example, the $500 credit greater than your tax bill ($3,000 – $2,500) can be carried over to the following year.
- If you didn’t claim the credit in a previous year, you could file an amended return to claim the credit.
The residential solar tax credit continues through 2034 and has increased in value, so now is the best time to add solar energy to your home. Federal solar tax credits can lower the effective cost of going solar while reducing your overall carbon emissions produced compared to traditional power sources.
When combined with the other energy-efficiency home improvement credits included in the Inflation Reduction Act, investments in solar panel installations have become more financially rewarding for homeowners.
Schedule a Solar System Installation With eEquals Today!
If you want to change to solar energy, now is the perfect time to take advantage of the tax credits for installing solar panels. As the leading provider of residential solar panels in Springfield, IL, eEquals has a team of renewable energy experts who offer efficient solar panel installation services.
As one of the leading solar companies in the United States, eEquals is dedicated to delivering quality work and excellent customer service. To schedule an appointment for solar installation, contact us today!
