Many people say that home solar energy seems like a great idea, but they never get around to acting on it. Why is that? Often, they figure they don’t have the money for it. With federal solar tax credits, though, you might find that home solar panels could fit more easily into your budget than you think.

One thing that can reduce your out-of-pocket costs is a solar tax credit. So how does the solar tax credit work? It can reduce your taxes based on a percentage of the cost of installing your solar power system. (You can get the key ideas about it here, but this is not official tax guidance. You should consult with a professional before making major financial decisions.)

The Federal Solar Tax Credit

Tax credits in general are dollar amounts that reduce the amount of taxes that a taxpayer owes if they qualify for the credit. If you can claim a $500 tax credit, for example, you would first calculate the amount of taxes you owe after deductions, then subtract the $500 tax credit from that total.

The federal solar tax credit can reduce your taxes by a percentage of the price of your solar power system. For example, if you were to get photovoltaic (PV) cells installed on your roof at a cost of $13,000, then a 26% tax credit would be $3380.

Who Is Eligible to Claim the Federal Solar Tax Credit?

In order to be eligible for this tax credit:

  • Your photovoltaic system installation must have been completed in the year that you are claiming
  • It must have been installed on a residential property (even if not your primary residence)
  • You must be the owner and purchaser of the system
  • Your system should be in use for the first time at your property during the tax year
  • Your system should provide electricity to the residence

To be sure that you qualify, though, you should seek professional tax advice and fill out tax form 5695.

Frequently Asked Questions

If you need to know more about how the solar tax credit works, look through these FAQs.

What percentage of a solar panel installation can I claim?

Between 2020 and 2022, the solar tax credit is scheduled to be 26%, dropping to 22% in 2023.

What is the maximum dollar amount I can claim?

There is no cap on the dollar amount you can claim with this tax credit. It is just a percentage of the installation cost. This means you can claim a higher amount if you purchase a more expensive system.

Does the system have to be paid off?

You can still qualify for the tax credit if you purchased your system through a financing arrangement and are still paying for it.

Can the solar tax credit get me a bigger tax refund?

No, this tax credit is nonrefundable, which means it is not allowed to be used to generate a tax refund. If your tax liability drops to zero, though, and part of the tax credit was not used, you can use the rest of the tax credit in the following tax year.

Can you claim the solar tax credit twice?

You can only use this tax credit once on each completed installation. But you could seek it again if you install a separate system or major new addition to the first system.

Take Action on Your Solar Panel Investment

You’ve thought about solar panels for a while, and now you can finally afford them. With financing, you can pay an affordable amount each month and still claim the solar tax credit. Contact Smart Wave Solar to find out more or schedule an installation.